Facebook’s Threat to Google Bewilders EU Minds: Matthew Lynn

What exactly is the European Union’s beef with America’s best technology companies?

Last week, the EU opened an investigation into Google Inc. for allegedly discriminating against competing services in its search results. Last year, it hit Intel Corp. with a 1.06 billion euro ($1.33 billion) fine. Earlier this decade, Microsoft Corp. got socked with a fine by the EU of almost 500 million euros.

At this rate, the people at Facebook Inc. and Twitter Inc. must be feeling distinctly nervous.

Can the EU really play policeman to the global technology industry? Of course not.

There are two big problems. First, the EU’s trust-busters don’t seem to have much of a clue as to the difference between a monopoly and a really, really successful company. Second, it looks like sour grapes, at best, and at worst, revenge. Europe’s regulators keep picking on the most accomplished U.S. companies while failing to do much to encourage competitors from their own countries. Antitrust policy shouldn’t be a way of leveling the industrial score between continents.

Google is only the latest in a long line of U.S. technology companies to get into trouble with Europe’s regulators. Intel, the world’s largest computer chipmaker, was fined for allegedly impeding competition in the computer-chip market. In 2004, Microsoft was fined after the EU ruled that it was taking advantage of its dominant position in the computer-operating systems used to run personal computers.

One More Probe

In July, the EU started an investigation into International Business Machines Corp. over whether it was abusing its position as the dominant supplier of mainframe computers. Back in 2001, the EU blocked General Electric Co.’s $47 billion purchase of Honeywell International Inc. on competition grounds, even though neither company was European. The list goes on and on.

The rights and wrongs of all those particular cases are for the lawyers to argue over. But there are two big issues that deserve a wider debate.

First, does the EU have a clue whether a technology company is dominating a market and abusing its power?

The one thing we have learned over the four decades during which the digital economy has emerged is that it has a natural tendency toward monopoly. We also know that these monopolies often are fleeting, with the time on top growing ever shorter.

IBM looked like a monopoly for a long time, before getting whacked by Microsoft and a host of companies that could make computers cheaper. Then Microsoft looked all-powerful, until the arrival of Google and the revival of Apple Inc. Google may seem dominant now, but Facebook is gaining ground fast. Will Google be as strong in a decade’s time as it is today? You would hardly want to bet on it.

Two Forces

In fact, two forces are at work. In technology, there is a huge first-mover advantage. The company that gets a product to the market first takes a massive lead over everyone else. There also is a network effect. People use Microsoft operating systems because everyone else does. It’s the same for Facebook. We log on that social network because it’s where our friends are. A natural consequence of both forces is very high market shares.

If a cement maker controlled 90 percent of the market, you might well suspect there was something murky going on that squeezed rivals out of the industry. But when a technology company has a 90 percent market share, that’s often just the result of it getting there first and everyone wanting to use the same website, search engine or software program.

It doesn’t necessarily follow that the technology company is abusing its position, or bullying rivals. It just happened to come up with an idea first and be really good at what it does.

EU’s Job

And, of course, the market is fluid. Something else gets invented really quickly. Rival entrepreneurs are likely to crack the monopoly, if that is what it is, far faster than any functionary in Brussels.

Next, is it really the job of the EU to police the global technology industry?

For starters, it looks like sour grapes for the EU to constantly attack the most successful U.S. companies. Europe has been very bad at producing new, high-tech champions. The mobile phone manufacturer Nokia Oyj is the only real winner, and it looks like it’s on the retreat after falling behind in smartphones.

Legal Assaults

Europeans probably wouldn’t be too impressed if the U.S. kept launching legal assaults on, say, Europe’s luxury automobile manufacturers or its fashion houses. They can’t be surprised if Americans look at the way the EU attacks the most innovative U.S. companies and start wondering if this isn’t more about hitting back at perceived American dominance of the technology industry than opening up the market. It sure looks that way -- and that is hardly the image the EU should be creating for itself.

If Google or Intel or IBM were true monopolists rather than just successful at what they do, then wouldn’t it be better to have a coordinated global approach to curbing their power? The EU can reshape the European electricity industry, or dairy industry, or whatever, but it can’t hope to re-shape the global technology industry. It makes itself look stupid and impotent by trying.

The EU would be better off spending its time and money thinking about how Europe could start producing a few more technology giants, rather than attacking the American ones.

Maybe Google is a monopolist, and maybe it isn’t. We need at least another decade before we can really start to reach a judgment on that. Even if it is, it’s unlikely that Brussels is the best place to start breaking it apart.

(Matthew Lynn is a Bloomberg News columnist and the author of “Bust,” a forthcoming book on the Greek debt crisis. The opinions expressed are his own.)

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To contact the writer of this column: Matthew Lynn in London at matthewlynn@bloomberg.net

To contact the editor responsible for this column: James Greiff at jgreiff@bloomberg.net

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