This Is What Happened The Last Time A Government Tried To Break Up A Big Tech Company

Bill Gates

As Europe considers splitting Google into two companies, it’s worth remembering what happened the last time a government tried to break up a dominant tech company.

Last time around it was Microsoft, which dominated personal computers.

In the 1990s, as the web took off, the only way most people could get online was with a PC. More than 95% of PCs shipped with Microsoft Windows.

In 1995, Microsoft bundled its web browser, Internet Explorer, with Windows. Over the next few years IE became the dominant browser, and the main gateway to the Internet. Netscape, the pioneer in the space, basically became irrelevant. (It was bought by AOL and later open sourced and used as the basis of Firefox.)

Competitors complained, and the Department of Justice stepped in with a formal investigation. The government also looked at a bunch of other things, like what Microsoft did with its own version of Sun’s Java technology (then commonly used to make interactive web pages) and how it pressured PC makers to support its favoured technology.

In March 2000, the judge in the case, Thomas Penfield Jackson, did what Europe is considering doing to Google today. He ruled that Microsoft should split into two companies — one that made Windows, and another that made everything else.

Fast forward 14 years. Microsoft no longer dominates computing. So the government’s antitrust investigation worked, right?

Sort of.

A lot of Microsoft insiders say that its antitrust battles did make the company more timid. For instance, before the antitrust problems, Microsoft might have considered bundling its search engine, Bing, into Windows. But there was no way Microsoft would even consider doing that afterwards.

Microsoft also stopped paying attention to IE, allowing competitors like Firefox and Google’s Chrome to horn in. It’s no longer the number one browser.

There was also a lot more bureaucracy put into place — certain decisions had to pass through more legal reviews, employees had to get trained on legal considerations, and so on. This may have contributed to a slower-moving culture that failed to innovate as quickly as it needed to.

But consider the following:

  • The law moves very slowly. Microsoft appealed Jackson’s ruling. The company was never broken into two and Microsoft was never forced to remove IE from Windows. The appeals court did rule that Microsoft was a monopoly, and it did restrict it from a lot of other particular practices. But the final results of the case were very different from the initial ruling. In any big case like this, the losing side will drag the appeals process out as long as possible. That’s by design — most legal systems are designed to make sure that everybody gets a fair chance to argue their case.
  • Disruption comes from unexpected places. Microsoft and the investigators were both fixated on the personal computer market and the web browser. But in fact, the end of Microsoft’s dominance came from an entirely different place — smartphones. In 2007, more than 90% of Internet requests came from a Windows computer. Now, it’s about 15%. That’s not because the government opened the PC to other web browsers. It’s because people chose a completely different way of computing that Microsoft missed out on and had no control over.

Google is incredibly powerful. Search drives a lot of web traffic, and Google absolutely dominates that market. Google dominates web advertising, mobile operating systems, and online video as well, and Chrome is now the number-one desktop web browser. Regulators should absolutely look at how Google is using that power and step in with forceful targeted penalties if they find abuse.

But in the end, the disruption to Google’s business will come from an unexpected place.

Most of Google’s revenue still comes from search advertising through a web browser. So maybe Facebook or another company will dominate mobile advertising before Google has a chance to. Maybe users will conduct web searches within particular mobile apps rather than turning to Google’s web browser. Or, more likely, some company or business we can’t even imagine yet will make search a lot less relevant.

Antitrust is a blunt, slow-moving instrument. By the time regulators actually figure out what to do to stop Google from using search to dominate other businesses, search probably won’t matter that much anyway.