Why didn’t Microsoft squash Google in the 2000s? (not because they had to deal with antitrust law suits)

By James Pethokoukis of AEI.

"One of the more compelling arguments for more heavily regulating Big Tech is that the megaplatforms are somehow stifling innovation. Compelling if true, of course. But from what I’ve seen, the argument pretty much consists of correlation and anecdote. For instance, there was a Wall Street Journal story last summer about Facebook’s “early-bird warning system” that finds and monitors potential competitors. As reporters Betsy Morris and Deepa Seetharaman conclude, “While it’s as easy as ever to start a company, it is getting harder to grow fast enough and big enough to avoid getting either acquired or squashed by one of the behemoths.”

As such, one is perhaps supposed to conclude the tech giants of the future are being suffocated in the cradle. The fate of the Facebooks and Googles of the future are at risk! Indeed, so goes this line of thinking, today’s tech titans only exist because government action in the past shielded them from that Great Monopolist and Startup-Squasher of the past, Microsoft. Bloomberg:

Luigi Zingales, director of the university’s Stigler Center, likes to remind people that the reason Google and Facebook were able to succeed is that the U.S. in 1998, under Bill Clinton, sued Microsoft Corp. for tying its web browser to its Windows operating system to undermine rival Netscape. A trial court decision that Microsoft should be broken up was overturned on appeal (though not the court’s finding of monopoly), and ultimately the case was settled by the George W. Bush administration. But it slowed Microsoft’s ability to dominate the internet. Zingales says today’s monopolies are yesterday’s startups, and a healthy system needs to make room for newcomers.

This is an interesting argument, but is it more truthy than true? I am certainly skeptical. For instance, I recently read “In The Plex: How Google Thinks, Works, and Shapes Our Lives,” a 2011 biography of the company by tech journalist Steven Levy. And as I read, I kept a sharp lookout for evidence supporting the claim that Google succeeded because antitrust had tamed Microsoft.

What I found: Google execs in the early 2000s were certainly concerned about Microsoft as a cutthroat potential competitor, even employing a “hiding strategy” to conceal until its initial public offering that the company had cracked the code on making huge profits on the internet by combining search with advertising. From the book:


But was the Microsoft beast asleep as a response to government legal action or because it was a big, bureaucratic, slow-moving incumbent? I think it may have been more the latter. Here is the story of Vic Gundotra, head of Google’s mobile division, whose previous employer was Microsoft:


Many accounts of Microsoft’s usurpation by Apple and Google tell a similar story. This from a 2012 Vanity Fair piece, “Microsoft’s Lost Decade”

In December 2000, Microsoft had a market capitalization of $510 billion, making it the world’s most valuable company. As of June it is No. 3, with a market cap of $249 billion. In December 2000, Apple had a market cap of $4.8 billion and didn’t even make the list. As of this June it is No. 1 in the world, with a market cap of $541 billion. How did this jaw-dropping role reversal happen? How could a company that stands among the most cash-rich in the world, the onetime icon of cool that broke IBM’s iron grip on the computer industry, have stumbled so badly in a race it was winning? The story of Microsoft’s lost decade could serve as a business-school case study on the pitfalls of success. For what began as a lean competition machine led by young visionaries of unparalleled talent has mutated into something bloated and bureaucracy-laden, with an internal culture that unintentionally rewards managers who strangle innovative ideas that might threaten the established order of things.

Or this 2013 Computerworld piece, “Steve Ballmer finally admits Microsoft blew it by focusing too much on Windows.”

Or this 2009 WSJ piece, “Microsoft Bid to Beat Google Builds on a History of Misses,” which includes this tidbit:

Nearly a decade ago, early in Mr. Ballmer’s tenure as CEO, Microsoft had its own inner Google and killed it. In 2000, before Google married Web search with advertising, Microsoft had a rudimentary system that did the same, called Keywords, running on the Web. Advertisers began signing up. But Microsoft executives, in part fearing the company would cannibalize other revenue streams, shut it down after two months.

I could go on and on here. Now this doesn’t mean Big Tech isn’t squashing innovation, but proponents of this view probably need more evidence than I am aware of to more conclusively make their case for action. If there is more, I would love to see it."