G-Mail’s Message for Regulators

Financial Times — Google’s message for regulators

Economists and cynics will ascribe the magnanimous mood of e-mail operators to market forces. The gathering Google storm, gliding rapidly toward its initial public offering, is casting a large shadow. It is pushing a motivational cold front into the space occupied by incumbent service providers. The extraordinary improvements in service all around illustrate the power of innovative entrants to disrupt.

They also underscore the limits of government regulation. By offering 2 GB for the price of 100 MB, the competitive rivalry now on display highlights the implausibility of administratively determined efficiency. The e-mail market looked perfectly functional and workably competitive to antitrust analysts prior to the recent seismic shifts. Innovation by decentralised entrepreneurs has revealed a new competitive equilibrium some orders of magnitude north. And these volcanic eruptions were triggered by Google, a company not known to be in the e-mail business.

The insight produced is not that markets out-perform Soviets, or that market entry can be surprising and tumultuous – all of which is true, but not news. The remarkable aspect of this emerging war over e-mail service is that it is fought at the core of markets judged by many to be wracked by monopoly, resistant to change and immune to challenge.

The massive antitrust case launched against Microsoft on May 18 1998 ended last week with a whimper. A federal appeals court has endorsed a settlement reached between the software company and the US Department of Justice. Six years of legal dispute, including a government victory on some important charges, have ended. Microsoft, yet in one piece, continues to dominate market share with Internet Explorer (having vanquished its browser rival, Netscape), with its Windows PC operating system (even as Linux continues to generate buzz and Apple refuses to die) and with its now standard office software programs Word (word processing), Excel (spread sheets) and Power Point (3 million MBAs can’t be wrong). Robert Bork, representing anti-Microsoft interests challenging the settlement in court, was disgusted with the result: “It appears on first reading that Microsoft has been cleared to continue its campaign of predation…”

So this is where Google comes in. Despite the fact that Microsoft and Yahoo are both moving aggressively to attack this space, Google’s search engine has performed brilliantly. Without the leverage of incumbency, the outsider has offered consumers value. Consumers have flocked to the innovative application; Wall Street now rushes to fund expansion. While in the cross-hairs of Microsoft’s “campaign of predation”, Google has developed a business plan that will soon be capitalised at something like $25 billion.

Make no mistake: Google strives to dominate. It aims to offer technology so compelling that rivals do not just lose market share, they lose the market. The incentive to seize and occupy a position of monopoly is what drove Microsoft frantically to develop highly functional browserware, distributing it to millions of Windows users free of charge so as to fend off the tempestuous Netscape. It is what fuelled Google̢۪s invention of a superior search engine, and it is what now drives it to offer a spectacularly more generous e-mail service. This is the productive violence of creative destruction, and its awesome power is only faintly hinted at by inbox notices announcing memory windfalls of 12,400 per cent.

But what about the little guy? Sure, he now gets 10 megs of free e-mail instead of the 2 he was getting a few weeks ago, but those who can afford to buy the premium service got bumped to 2 gigs from 100 megs, making the gap between rich and poor all the greater. The poor schmoes who think they were given an extra 98 megs of space are actually getting shafted out of 1.9 gigs of storage by the monopolistic corporate Man, intent on keeping the little man down.

The need for a Nader presidency has never been clearer.

FILED UNDER: Economics and Business, Science & Technology
James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. James,

    You’ve sarcastically, and hilariously, demonstrated why I’ve never bought into using the 80-20 spread as an economic measure: the assumption that the upper 20% of income earners somehow take their earnings from the lower 20%. Good show.