In the game of monopoly, Microsoft went first, Google is going now

Later this month, the Justice Department’s antitrust division will have a big decision to make: whether to try to take down one of the richest and most powerful companies on the planet.

By November 20, the DOJ is to formally propose in federal court remedies that should be taken in the case US v. Google. This summer, a federal judge said Google had maintained an illegal monopoly over internet search.

The DOJ said in previous court cases that what is known in antitrust circles as a structural remedy is indeed fun, but for what Google can be better called the nuclear option: splitting the company into separate entities.

The thing is, the DOJ has tried before to take down a tech giant it accused of monopolistic behavior, a little company called Microsoft.

And for a hot minute, it really looked like it was going to happen. On June 7, 2000, after weighing the proposals of the DOJ, a federal judge ordered that Microsoft be split in two.

Like Google, Microsoft has been found guilty of acting as a monopolist, notably by using its dominant Windows operating system to pressure PC makers to favor other Microsoft applications, such as its Internet Explorer web browser .

“The belief was that if we broke Microsoft into an applications company and an operating systems company, those two separate companies would compete very aggressively,” said Daniel Rubinfeld, an economist in the Bill Clinton administration’s DOJ during the Microsoft trial .

The DOJ wanted a clean break, in part because “behavioral remedies” — ongoing monitoring and other conditions to ensure Microsoft complies with the rule — would be difficult to enforce.

But Rubinfeld also hoped the split would prevent Microsoft from extending its tentacles into a new technology called the World Wide Web.

“This was a point in time when we didn’t know for sure how the Internet was going to develop, other than it was going to be very important,” Rubinfeld said. “We wanted to see innovations that would be meaningful as the Internet develops.”

In the end, the breakup never happened. Microsoft successfully appealed, some tads in Florida meant that the more business-friendly George W. Bush took over the White House, and a settlement was reached in September 2001.

It banned Microsoft from requiring PC makers to use Microsoft software exclusively and appointed an on-site monitoring committee to oversee the company.

There are arguments over how successful that deal was. Antitrust remedies are not only about punishing and preventing anti-competitive behavior. It is also about resetting the playing field to ensure competition and innovation in relevant markets, including markets for technological products that may not yet exist.

Economist Fiona Scott Morton of the Yale School of Management argued that the deal, as well as the legal and public scrutiny Microsoft endured during protracted and costly litigation, was successful on at least one measure: It prevented Microsoft to shut down the nascent web to rivals.

“The Microsoft case stopped the software maker from controlling the Internet,” said Scott Morton. “And now we have the Google case, and hopefully that stops the party that controls the Internet from dominating the next thing that’s coming. Maybe it’s AI, maybe it’s something else.”

Some advocates for stronger antitrust enforcement they argued that without Microsoft’s antitrust settlement, Google would not have become the Internet powerhouse it is today.

But Adam Kovacevich, CEO of the tech industry association Chamber of Progress, said attributing Google’s success to Microsoft’s case is misreading history.

“Google’s founders certainly didn’t think about the Microsoft antitrust case at all,” said Kovacevich, who previously worked at Google on antitrust issues. “They weren’t trying to compete with Microsoft. They were trying to improve Yahoo.”

But beyond the debate over the impact of Microsoft’s current antitrust settlement lies a counterfactual: If Microsoft had been broken up, what would have happened?

“I think if there had been more competition, we would have seen more innovation,” Rubinfeld said. “I mean, I’m pretty happy with a lot of the products I use, but I think they could have been better.”

Underlying the government’s pro-separation argument is the logic that more smaller companies means more competition to develop the best technology at the cheapest price.

It may sound like a lesson from an Econ 101 textbook, but in the real world, sometimes real innovation requires massive scale, argued Joseph Coniglio, director of antitrust policy at the technology-funded Information Technology and Innovation Foundation.

“It’s the big firms that have the resources and the incentives to be able to make those big investments to create those new products,” Coniglio said.

If Microsoft had broken up in the early 2000s, Coniglio added, it may not have become a major player and innovator in cloud computing.

“If you were to break Google, how would that affect the company’s ability to invest in AI and these new, next-generation technologies?” asked Coniglio.

The Justice Department has removed Google’s Android mobile phone operating system and Chrome browser, arguing that the products strengthen Google’s search monopoly.

Rubinfeld said consumers should know that the rate of technological progress is not solely dictated by Silicon Valley.

“I think it’s a mistake to think that the path of innovation is predetermined and that it can’t be influenced by the actions actually taken by the antitrust agencies,” he said.

For the record, Rubinfeld still uses Windows for its operating system and Google for its search engine.