The rise and rise of the mutual monopolists

WIRED:Smaller firms no longer have a chance outside the environments provided by the big tech companies, writes DANNY O'BRIEN

GOOGLE CHAIRMAN Eric Schmidt was on Capitol Hill in Washington this week, defending the company in front of the US Senate and under the glare of the regulators at the Federal Trade Commission (FTC).

Along with other criticisms thrown at him, he was asked whether the search engine was a monopolist. Unusually diplomatic and indirect, Schmidt said he was not a lawyer but he agreed that “we’re in that area, but we’d have to let the judges look”.

It’s not much of a confession: Google’s market share of the internet search business clearly dwarfs that of its competition. In the US, Google has 85 per cent of the search engine market share; the number two slot is occupied by Yahoo with just 8 per cent. (Yahoo’s search is actually powered by Microsoft’s Bing, the number three, implying a duopoly at best.)

But, in the US at least, being a monopoly doesn't make you an illegalmonopoly. For that, you need to have obtained your monopoly through illegal means and to use it to undermine competition.

In the search engine environment at least, Google has always had something of an easy response to charges that it was reducing competition: other search engines are still only a click away on most browsers.

However, Google’s wealth comes not from its search engine, but from its grip on the online advertising market: Google took 60 per cent of that market. And the two can appear to interact in unfortunate ways.

Microsoft, it was reported by Bloomberg, has complained to the FTC about Google’s high charges for advertising Microsoft properties, including Hotmail, Microsoft’s competitor to Google’s Gmail.

In addition, while desktop browser users can click away from Google, mobile users of its Android platform face a more difficult struggle to escape Google’s services.

But do all these interactions make any of the many markets Google haunts any less competitive?

It seems the real power that Google wields, as Microsoft before it and Facebook following it, is the power of network effects. Google may be easy to leave, but no one does, because they have no need to, and they’re already at Google.

The costs of moving from Microsoft to Linux or Apple are not prohibitive, but they’re sufficient to give most people pause. And now that Facebook has 700 million users, where else could you possibly go to find your friends?

But network effects do not last forever, and in the past few months we’ve seen what happens when even a dominant power is threatened. When Google+ was launched, it seemed the first potential threat that Facebook could face. The response was swift: Facebook has already sought to imitate the best elements of Google+ or, in some cases, simply re-emphasise features it already had.

This week, Facebook has revamped its entire site, filling it with a battery of new features and elements that seek to distance itself even further from Google’s forays into social networking.

Meanwhile, Google’s search service has blinked a couple of times in the face of Bing’s steady approximation of its capabilities. It has improved its image search and revamped its ancient front page as a clear reply to Bing’s more polished versions of both.

It’s hard to say there is no competition when each of these giants is nudging the other. Yet, all we appear to have right now is the prodding of mutual monopolists.

It’s not play-competition that these companies are indulging in. No one would think that any of these companies were like those of previous ages, when there was open collusion to exclude smaller competitors from comfortable oligopolies.

Microsoft, Facebook and Google would also find it ridiculous that they work to wipe out smaller businesses. All three of them thrive on millions of independent developers, working to create desktop software, Facebook apps or just searchable web pages.

But you don’t always need to have a co-ordinated, malicious or even conscious intent to end up with a dangerous result. The shift we’ve seen on the internet in the past 10 years hasn’t been the rise of a single monopoly. If anything, with the rise of Apple, Google and Linux, we’ve seen a growing diversity of devices and software.

What has happened, however, almost imperceptibly, is a shift away from the idea that smaller companies have a chance outside the environments that these companies provide.

You can’t exist on the web without being part of Google’s great search index. You can’t exist on PCs without choosing to live in either Microsoft or Apple’s mansion. And, especially with Facebook’s launches this week, most companies are increasingly resigning themselves to working their social software into Facebook’s environment.

Perhaps the fact that we have a multiplicity of competing environments is enough.

Perhaps there is an inevitable trend towards dominance through network effects, and we’ll always have a few top dogs that we should learn to live with. But compared to the days when the protocols of the web were simply open and unowned, it seems like a more restricted, less free and, yes, less competitive digital world in which to do business and to live.