
“Google Is as Close to a Natural Monopoly as the Bell System Was in 1956″ - frgtpsswrdlame
https://promarket.org/google-close-natural-monopoly-bell-system-1956/
======
redm
I think the key point here is not whether Google is abusing its effective
monopoly willingly, its that it exists at all. There may be alternatives, but
not viable ones.

Try not supporting Chrome or ignoring Chrome requirements such as security
mandates, you will go out of business. You can say these are 'good' for the
consumer but the fact that Google has the ability to unilaterally change the
web itself is partially the issue, they are not a standards body.

Whats the viable alternative to Google Search? Sure you can use Bing as a
customer, but if you're a website operator you HAVE to stay on Google's good
side. (not always easy to do)

Whats the viable alternative to Adsense? Especially when it comes to many
Geo's that are hard to monetize.

Whats the viable alternative to Android?

Not all aspects of Google's business are so dominated, but where they are, you
have little choice but to go with Google and the fact that are dominate in so
many key segments is troubling.

Let's be honest, it's not like Google makes themselves easy to contact,
interact with, or get support from. They are in many ways a black box.

Ever notice how the transparency reports for Safe Browsing never includes
Google Properties or how they are happy to report DMCA issues for the
internet, but never for Youtube?

~~~
scarface74
_Whats the viable alternative to Google Search? Sure you can use Bing as a
customer, but if you 're a website operator you HAVE to stay on Google's good
side. (not always easy to do)_

Or you can not base your business on the fickleness of Google's search
algorithms. Ben Thompson (stratechery.com) posts one article per week
publically and charged $100 a year for his newsletter. The only time he gave
numbers, he has over 2000 subscribers.

There are other ways to build a business that don't depend on search.

 _Whats the viable alternative to Adsense? Especially when it comes to many
Geo 's that are hard to monetize._

If you are in a certain niche, find a publication or a podcast that serves
that niche and make a direct connection to them. Marco Arment - a one man
development shop - created his own podcast based advertising platform that is
doing well.

 _What 's the viable alternative to Android_

The viable alternative to Android is...Android. Many companies are forking the
AOSP version of Android and running their own services, including Amazon in
the U.S. and a few companies in developing markets.

The danger Google faces is not that a company will come up with a better
search engine, it's that people will start using search engines less as mobile
takes over along with digital assistants that give you the information you
want.

Facebook is already seen as a place for old people and young people may have a
FB page but they aren't posting to it because their parents are on it.

~~~
zeteo
> There are other ways to build a business that don't depend on search.

There are also other ways to run a household that don't depend on running
water. (Heck, my great-grandpa never complained about having an outhouse.) Are
you saying your local water utility should be an unregulated monopoly?

~~~
fixermark
You seem to be trying to build an analogy between a person's right to a
material necessity and a corporation's right to a convenient market. I don't
think the analogy holds.

(The flip side would be "Are you saying Google should be a nationalized,
government-regulated search engine?")

~~~
rayiner
Municipal sewer/water isn't a material necessity, they're a convenience. There
are million dollar houses in the D.C. suburbs that have well water/septic.

~~~
fixermark
That's true. "Any water" is a material necessity (I think I'd argue "any
sewer" too, if you plan to not pick up and nomad yourself around every few
weeks). If you can self-supply it, that's fine.

------
jessaustin
Ma Bell's monopoly has never been "natural". It has been enforced by FCC, ever
since FCC was formed for that specific purpose in 1934. Even before that, ICC
through the Kingsbury Commitment had adopted an ill-considered and unjustified
hands-off policy with respect to Ma Bell's anticompetitive actions.

~~~
guelo
Funny how just about every country in the world ended up with a telephone
monopoly.

~~~
Thrillington
Every new method of radically increasing information transfer speeds is ripe
for monopoly.

------
mikeash
It's hard to see any comparison. At the peak of AT&T's power, they were able
to block sales of a third-party device that attached to your phone that helped
keep people from overhearing your conversations. The device was just a cup, it
didn't do anything electrical, but AT&T still decided they didn't like it and
shut it down.

That was eventually overturned in court, but it was a decade-long fight. It
took another decade before third parties were allowed to sell devices that
transmitted sound through the phone system with acoustic coupling, and another
decade after that before you could just plug in your own phone.

For everything Google does, there are viable competitors. They may not be
nearly as large, but they're extremely easy to switch to if you want. People
don't stick with Google because they have no choice (as would be the case with
a monopoly) but because they like it more.

~~~
beagle3
I agree with what you wrote, but the comparison is apples to oranges: Google
customers are businesses; end users (who CAN switch easily) are the product.

Right now the only (supposedly) viable competitor is Facebook, but it's more
of an advertising duopoly that divides the market - all the people I know who
advertise say that you use FB for brand/interaction/marketing and Google for
sales, and for a specific spend it is usually clear which one gets it (and
seldom if ever anyone other than FB or Google).

~~~
jhall1468
> Google customers are businesses; end users (who CAN switch easily) are the
> product.

I am a Google customer. They provide me with a product (Google) which I pay
for by allowing Google to display advertisements on the results.

A business is also a Google customer. They pay Google to display ads to a
visitors to the website.

But that distinction is moot anyway. Businesses aren't covered by consumer
protections because they aren't "consumers".

~~~
bunburying
I think you're being a bit mischievous with you definition of customer.

You're really a user; not a customer. Customers pay. Google is selling your
eyeballs to advertisers. Advertises are Google's customers.

~~~
notatoad
>Customers pay

And the important distinction if you want to counter the argument that the
person you're replying to is making:

Customers pay _with money_. "paying" with a currency like privacy or
convenience isn't actually paying. If you aren't paying for something _with
money_ you aren't a customer, you're a user.

------
panabee
It would be great to see more balanced discourse on monopolies, especially in
a software-dominated world. Most analyses and articles fixate on the costs of
monopolies.

Let's assume the worst of Google and conclude they abused their search
monopoly. Innovation in search was stifled. Competitors were damaged and
achieved only a fraction of their potential. For instance, Yelp might be worth
$15B instead of $3B in a world without "evil" Google.

But Google's search monopoly and concomitant cash flows also gave society free
worldwide communication, self-driving cars, cheaper smartphones, free digital
maps, and countless other benefits.

All policies hurt some and help others.

Before supporting or rejecting a policy, it's wise to consider the overall
benefits to society instead of focusing only on the injured parties. Why
should thinking about monopolies differ?

To reiterate, this is neither endorsing nor disparaging monopolies. It's a
request for objective analysis and updated thinking to reflect the potential
new realities of monopolies like Google that give products away for free.

~~~
frgtpsswrdlame
>But Google's search monopoly and concomitant cash flows also gave society
free worldwide communication, self-driving cars, cheaper smartphones, free
digital maps, and countless other benefits.

To be clear you can't be sure those things wouldn't be around if google hadn't
had a search monopoly. Maybe we would have even better digital maps for
example had there been way more firms competing. Monopolies can't just be
measured by the businesses that they outcompete but also in all the never-
realized businesses who their market domination discouraged.

~~~
ng12
How does Google's search monopoly lead them to self-driving cars? This is why
I question the Google vs Bell comparison. It seems to me Google wins because
they are really, really good at producing technology, not because they have a
systematic first-comer advantage.

~~~
Retric
Monopolies tend to be lest cost conscious. So, Google may be over investing in
their self driving team which could cause a less efficient solution to win.

Picture the MBA where one team Q spends 100m/year per player to get the best
players and more importantly keep them from other teams, but Q has a poor
coaching staff. The fact Q keeps wining reduces the drive to replace that poor
coaching staff, and other teams may fail to compete so they may give up on the
playoffs instead focusing on cheaper players.

Not fast forward 20 years and the sport is overall in a worse position with Q
lowering standards because nobody else is really competing. For a more
relevant example consider the IE 6 stagnation before Firefox.

~~~
ng12
That's just economics at work though. The guy with more money to blow will
always have an advantage.

~~~
Retric
Not so much. The invisible hand of economics just means the less efficient or
less desired producers are pushed out of the market. It's just that the guy
with more money can often invest it to become more efficient.

~~~
ng12
Right, money is an advantage and big companies generally have lots of money.
The point is Google is not unique in that regard.

~~~
Retric
They are actually a massive outlier.

[http://www.siliconbeat.com/2016/05/20/apple-microsoft-
google...](http://www.siliconbeat.com/2016/05/20/apple-microsoft-google-cisco-
oracle-hold-cash-moodys-report/)

While Apple has a larger total cash horde ~(216 billion) only 7% of that is in
the US or 15B, Google has a larger US cash horde @$73B * 31% = 22.6B making it
the largest accessible cash horde in the US.

PS: The ~$1.68 trillion in cash held by U.S. companies at the end of 2015 is
kind of misleading as financial companies are required to hold cash on hand
and thus can't use it for R&D or they are keeping money out of the US while
waiting for a Tax holiday under Trump or possibly some other administration.

~~~
ng12
I'm not saying that Google doesn't compete on their cash reserves, I'm saying
"so what"? Does having a lot of capital make you a monopoly? Should we
penalize business for having cash to spend?

~~~
Retric
Look at it from the other direction. I am saying one of the downsides of
monopolies is they end up with a lot of capital, but they don't use it
efficiently. At the core investing capital efficiently is a different skill.

Another way to look at it is after breaking up AT&T it created a lot of
horribly dysfunctional companies. Verizon is a long way from greatness, but
many of these guys where far worse and then went out of business because they
where inefficient. Remember, it was the same people, tech, and business models
before and after the breakup, but busting up AT&T exposed problems to market
forces which then went away.

I am fine saying the rot has yet to set in at Google. But, give it 20 years
and expect the same kind of problems because of human nature.

PS: Granted, this does not really answer your so what, but efficiency in the
long term really is a boon to society.

------
rjmunro
This article annoys me.

"YouTube makes $9 billion in annual revenues, but artists earn more from the
sales of vinyl records than online streaming"

It's a useless comparison. Perhaps the vinyl industry is worth more than $9
billion. Not all of YouTube is music streaming. More artists are on YouTube
than release vinyl. A single artist that has vinyl releases and has videos on
YouTube may earn more from the vinyl, but there are many more artists on
youtube who don't sell vinyl.

The article is good and has a valid points, but it's important to put
comparisons you can actually compare.

Then "... Levon Helm, who was forced to put on a series of concerts at his
home at the age of 70, while dying from throat cancer, in order to pay his
medical bills"

Sounds like a story about medical bills / lack of insurance, not a story about
digital music sales. Plenty of other people get throat cancer and aren't
famous enough to put on concerts to pay the bills.

------
Omnius
Google has a ton of competition across all of its products. It's dominating in
some of them but being better then your competition is a lot different then
there not being any.

~~~
kuschku
Google beats the competition in some markets because they have so much power
in other markets.

If you start a startup even in cloud photo storage, and suddenly Google Photos
comes along, you’re dead. No one will fund you anymore, and you’ve basically
lost.

Google has such an immense amount of network effect, and of knowledge they can
gain from dominating in other markets, that if Google enters a market – unless
there’s regulations or network effects that prevent this – they immediately
dominate it.

~~~
ng12
So how do you feel about Apple? When Google wins it's because they make a
better product than the other guy. Apple can deliver a clearly inferior
product (e.g. the last 5 years of iTunes) and still win because their
customers are using iDevices. Google doesn't have that lock-in and they still
do really well which makes me feel like they're not really a monopoly.

~~~
ticviking
I think a big part of it is that Google controls one of the single most
effective advertising channels to drive the growth of a competitor, and can
therefore strangle them in the cradle.

~~~
dannyr
Wait Google does not allow its competitors to use Adsense?

~~~
ticviking
Fair response there.

They have unilateral power to bury someone in search results though. Which can
effectively require them to use adsense.

I don't think this is reasonable. Buy our other product or get poor search
results. There's a few really good examples on other threads here. The best
example I saw involved a hypothetical YouTube competitor facing a large number
of DMCA takedowns, they may be complying with the law, but the takedowns will
give google an excuse to bury them in search results forever more, while they
can "excuse" YouTube.

------
rmvt
> (...) he has seen first-hand the damage that the internet economy has
> wrought on working artists like his friend, legendary drummer Levon Helm,
> who was forced to put on a series of concerts at his home at the age of 70,
> while dying from throat cancer, in order to pay his medical bills.

this is a bit farfetched. do you really want to blame the internet for the
immense fuck up health care has become? really?

------
tuna-piano
The term "Natural Monopoly" has a special meaning besides just the common
definition of both words, which is missing from this discussion, but is in my
opinion the most interesting topic of discussion. Basically all software fits
the economic definition of "Natural Monopoly".

Natural monopolies exist in situations where the fixed cost is large and the
marginal (per-customer) cost is small. In these situations, it only makes
sense for one company to exist, as each additional company that exists will
just increase that large fixed cost, while not decreasing the per-customer
cost. Therefore, each additional company just increases the the total societal
and average per-customer cost.

Natural Monopolies have been defined and talked about for longer than software
has been around. The long-running natural monopoly example has been that it
doesn't make sense to have two power lines to your house. Another historical
example includes newspapers, who have fixed article writing costs, but can
distribute it to every customer in a city. Some people consider that Wal-marts
in small towns are natural monopolies, given the fixed cost of a large store,
and the lack of a market for more than one store in a given area.

Software, of course, has large fixed costs and small per-customer costs.

The questions for me are:

-Historically, why have some natural monopolies been considered bad (railroads, utilities), and needing regulation, and others (newspapers, Walmart) not?

-Is Google's advantage really as a true economic natural monopoly, or is it just a really powerful habit and brand? Bing seems pretty close in search quality, but yet few switch over.

-If the economic definition of natural monopoly exists at Google and most software companies - why are there countless exceptions in software: database software (Oracle, SQL Server, DB2...), Web browsers (Chrome, Edge, FireFox, Safari), calculator apps, etc?

-What are the current issues with potential natural monopolies at these software companies, and would a regulated model make them better or worse for society?

[http://www.investopedia.com/terms/n/natural_monopoly.asp](http://www.investopedia.com/terms/n/natural_monopoly.asp)

[https://en.wikipedia.org/wiki/Natural_monopoly](https://en.wikipedia.org/wiki/Natural_monopoly)

~~~
ouid
>Bing seems pretty close in search quality, but yet few switch over.

a) Why would anyone switch if they are both equal and both free?

b) Most people use chrome. Most people don't change their default search
engine.

c) As much as people pretend to hate Google, they actually hate Microsoft a
lot more, and for good reason. Microsoft operates on bad faith far more
frequently than Google does, most of their business decisions seem to revolve
around the question "How do we leverage product A to force the user to use our
product B?" whereas Google's anticompetitive behavior has always been more
passive.

~~~
ocdtrekkie
In fact, you are self-defeating your arguments. Chrome was entirely built to
be leveraged to force people to use Google Search, since people don't change
their default search engine. Bear in mind, they paid Apple and Mozilla each
over a billion dollars to be everyone's default search. Sundar Pichai, the
current CEO of Google, got started by pushing the Google Toolbar as one of
those bloatware add-ons when you install other software, that would hijack
your default search when you installed it.

Google also leverages Android to force people to use all sorts of Google
products, using their agreements with OEMs which ensure things like default
search, default maps, default email setup, etc. That's the whole point of
Android.

Google's anticompetitive behavior is extremely active, and they make Microsoft
look like an innocent kitten in comparison. It sounds like you don't know a
whole lot about how Google operates as a business.

~~~
AnimalMuppet
> ... and they make Microsoft look like an innocent kitten in comparison.

It sounds like _you_ don't remember Microsoft back in the day. Google
"Halloween Memos". (Edit: Note particularly the bit about "de-commodifying
protocols", that is, finding ways to break standards and create lock-in.)

Microsoft literally paid web sites to put HTML in their pages so that Netscape
wouldn't handle properly.

Microsoft literally generated false error messages when they detected a
product from a competitor. (IIRC, that one was on a spreadsheet, and the
product was maybe a DOS clone? There wasn't anything wrong with the clone, but
the error message made it look like there was.)

An equivalent, today, for Google would be if, when you typed bing.com into
Chrome, it took you to Google. Or if Android detected Microsoft apps and made
them break in mysterious ways.

ouid's point is valid. Google is more passive in anticompetitive behavior.
(That doesn't make the behavior good. It makes it less bad than Microsoft.
Microsoft is hardly the "innocent kitten" here. However, I will concede that
Microsoft hasn't been as bad as they were for... maybe a decade?)

~~~
ocdtrekkie
I would argue that if you think any of that compares to Google, you don't have
any clue what Google's been up to lately. ;)

But at least you can acknowledge that there's almost no comparable evidence of
anticompetitive behavior from Microsoft in the last decade. But I acknowledge
as well that if Microsoft were in a monopoly position again, as Google is now,
they would be up to the same hijinks.

~~~
AnimalMuppet
Microsoft arguably still is, in the OS area. What mellowed Microsoft out, in
my view, was the US antitrust court case and resulting consent decree.

------
faragon
In my opinion, Google is a tolerated monopoly because of being efficient, and
not being too greedy. I.e. providing many efficient "free" services that work
great is a good thing for the society, and in return Google gets a massive
lock-in in advertising and information control capability.

So, the dilemma is: if for having such great "free" services is required the
existence of that kind of monopoly, should we tolerate it and accept it as a
lesser evil?

------
beefman
It seems neither Taplin or Schechter know what a _natural_ monopoly is

[https://en.wikipedia.org/wiki/Natural_monopoly](https://en.wikipedia.org/wiki/Natural_monopoly)

------
AnthonyMouse
The Bell System wasn't a natural monopoly.

AT&T had a monopoly on _long distance service_. The natural monopoly is _the
last mile_. Even after Ma Bell was broken up, all the local natural monopolies
were still there. Bell Atlantic (now Verizon) didn't serve the same territory
as Southwestern Bell (now "AT&T").

The way that Ma Bell _became_ a national monopoly is that nobody originally
prevented them from leveraging their last mile monopolies. If your network is
the only way to reach millions of telephone customers in your service area, a
smaller provider has no choice but to deal with you, and so absent regulation
the bigger telco can charge whatever they want for interconnection. They can
also show up with an offer to buy your network for cost in one hand and a
bankruptcy-inducing interconnection bill in the other. If this sounds to you
anything like the current debate over network neutrality, well spotted.

Google isn't AT&T, they're IBM.

------
pascalxus
I think it's dangerous of Theil to absolve monopolies as "good". Monopolies
can lead to deadweight loss and stagnation.

The human species only has limited supply of attention and "goto mindspace" to
reach. Human attention is a natural resources, just like coal, or oil. Imagine
if a single petrol company had access to all the oil on the Earth - it
wouldn't be good.

On the other hand. There's not much we can do about this problem until
consumers start seeing it as a problem. Once consumers do see it as a big
problem - we'll have opportunities open to us :)

------
beagle3
An important difference that a lot of people seem to ignore:

Ma Bell's users were Ma Bell's customers.

Google's users are not Google's customers - they are Google's product.
Google's customers are advertisers, and it is there where Google has a
monopoly, and talk of "cost of switching" is meaningless in that respect -
other advertising venues are meaningless for most advertisers.

------
ipa711
I use duckduckgo more than Google for search. I almost always get hits with
duckduckgo, that I want, that are on page 2 of Google.

~~~
hobarrera
DuckDuckGo is great. It's gotten so much better in recent years, that I can't
stand the poor results that Google yields recently.

TBH, if I can't find something on DDG, google won't have anything useful
either.

------
Teknoman117
So why is he leaving Microsoft out of the mix? He claims Google having an 88%
share in advertising is a monopoly, why then claim that Microsoft is not a
monopoly when it has a similar share of the PC space?

He says that Microsoft competes in the market with many players, but Google
also competes in the market with many players.

------
jackcosgrove
There is another advantage/disadvantage (depending on your perspective) to
Google vs. AT&T that I haven't seen discussed.

One of the classical arguments in favor of monopolies is not just efficiency
but that they concentrate capital for large-scale investment. In the case of
AT&T this occurred with Bell Labs, and it is also happening with Google.

Whether an alternative system could be more innovative is impossible to
determine. I am of the opinion that, even in Silicon Valley, the big firms
(Bell Labs, Xerox, Google) make the biggest investments and innovations
(semiconductors, operating systems, search engines), while smaller startups
adapt these technologies to business uses.

~~~
marcosdumay
That extra capital is extracted from society by impoverishing it.

If you wanted to tax people for research, the government can do it way more
directly, without depending on the good will of a few rich people.

------
luord
> Q: As you point out yourself in the book, natural monopoly can also be a
> positive thing. For instance, in the cases of the telephone and the
> telegraph. What is the difference between those natural monopolies and
> digital platforms?

Of the interview, this was _by far_ the most interesting question and he
didn't really answer it.

It could be argued that at the root of the net neutrality crisis is that cable
companies don't have to risk a race to the bottom. If they did, they'd sing a
different tune, if only to use "we will deliver everything to you without
playing favorites or selling your data" as a sales pitch.

------
tehabe
I disagree on the term "natural", but I agree that Google is a monopoly. A
phone company with last mile lines has a natural monopoly because competition
need access to the last mile to offer their services. That is the reason that
the Bell System was a natural monopoly and essentially every phone company on
the planet.

Facebook has a near-natural monopoly I think, because of the network effects
of its 1 billion memebers. Microsoft had one too, when everyone was developing
everything for a PC running Windows, this got broken due to the web and
smartphones.

Building a new search engine is not impossible, you just need a lot of breath
and patience.

------
bedhead
One big difference is that Google is free its customers.

~~~
beagle3
No. Google is free to its users, but the users are the product. The customers
-- the advertisers -- pay dearly.

~~~
bedhead
That is not how the FTC sees it.

~~~
beagle3
What definition does the FTC use?

The IRS doesn't consider "time" or "privacy" a payment; if they did, you would
have to report your internet browsing on your tax return because barter.

~~~
bedhead
The FTC tends to see consumers...people.

------
awqrre
I have a feeling that it will get even worst when Google will dump the Linux
kernel in favor of it's own. (with Google’s “Fuchsia” smartphone OS)

------
polskibus
I wonder how does this refer to Microsoft with Azure and other companies with
ultra-broad platform offerings with hundreds of services and products.

Maybe internet companies should scale horizontally and not verticly in their
product offering after they reach certain size?

~~~
ocdtrekkie
I think there's a huge issue with all of these companies being able to own so
many disparate products. It creates an effect where users feel like they need
to be in one company's ecosystem or another, and inherently protects bad
products or bad business models from competition through this ecosystem
effect.

People who use some Google services tend to use mostly Google services. People
who use some Microsoft services tend to use mostly Microsoft services.

Without much stricter regulation to at bare minimum require more
intercompatibility between competing ecosystems, I don't see this effect
decreasing.

------
bitmapbrother
Microsoft still has over 90% of the desktop OS marketshare. How is this not
even a greater natural monopoly?

------
treytrey
Amazon is far more scary as monopoly.

------
FussyZeus
I've worked hard at distancing myself from Google. It seems their motto "Don't
be Evil" has about as many asterisks behind it as they can manage. Every
product they design seems to be built from the ground up to enable data
collection, and every advertiser they partner with seems to have build
plausible deniability into every aspect of the "product" they claim to
deliver. I can't point to anything in particular, but whenever I use any of
their software it just feels...creepy.

At the moment I'm still tied to Chrome for bookmark sync but that's about it.

~~~
arthulia
Google officially dropped the "Don't be Evil" motto a while back and picked up
Alphabet's "Do the Right Thing" motto, which seems a lot more subjective.

~~~
itp
Alphabet code of conduct: [https://abc.xyz/investor/other/code-of-
conduct.html](https://abc.xyz/investor/other/code-of-conduct.html)

"Employees of Alphabet and its subsidiaries and controlled affiliates
(“Alphabet”) should do the right thing – follow the law, act honorably, and
treat each other with respect."

"If you are employed by a subsidiary or controlled affiliate of Alphabet,
please comply with your employer’s code of conduct."

Google code of conduct: [https://abc.xyz/investor/other/google-code-of-
conduct.html](https://abc.xyz/investor/other/google-code-of-conduct.html)

"Don't be evil."

~~~
FussyZeus
But wouldn't that technically apply to only those working at Google, not the
other Alphabet companies? Not that it really matters, both are utterly without
meaning. I was just using it to show how their corporate personality has
changed over the years.

~~~
polishTar
That's a really silly way of doing it then. Besides, "do the right thing" is
more restrictive than just "don't be evil"

~~~
ocdtrekkie
"Do the right thing" for whom? Making money is definitely doing the right
thing... for Google's bottom line.

~~~
magicalist
"Don't be evil" to whom? Making money is definitely not evil...for Google's
bottom line.

This is a silly game. Proof by corporate motto.

~~~
mrep
That's Amazon's strategy, where half of the leadership principles contradict
the other half so there is always a way you can spin something.

