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Google and Motorola: Concentrating Attention on Concentrated Power

Insight August 16, 2011

Google is one of the worlds most intriguing companies.  From its humble beginnings as a search engine company, Google has leveraged its mastery of the elusive formula for monetizing web traffic into a force capable of tangling with China—making it considerably stronger than our own State Department by some measures.  Its recent announcement that it plans to acquire Motorola Mobile makes it heir to a grand tradition of American manufacturing—not to mention possessor of a valuable trove of intellectual property, and a sudden direct competitor to stylish hardware king, Apple.

Along the way, Google has managed to wander into numerous areas of public policy, including privacy, data security, and telecommunications regulation.  It has attracted antitrust scrutiny, patent challenges, and copyright suits—along with the standard collection of business litigation.  It has become a significant contributor to election campaigns and an active bidder for government IT contracts.  Above all, Google has riveted the attention of both devoted fans and committed opponents.

What does it all mean?  How can we make sense of such a company?  And how can the answers to these questions inform contemporary political debate?

Of the many axes that define twenty-first century American politics, one economic split pits fans of the public sector against fans of the private sector.  While the vocal members of these warring camps tend to point to different virtues for the public and private sector, they each point to a similar vice: much of the political left is inherently distrustful of corporations, while much of the political right is inherently distrustful of government.  Why?  Those who trust government tend to believe that elections and constitutions constrain abuses of power, while corporations are slaves to profit-seeking shareholders and greedy board members.  Those who trust companies tend to believe that competition and market dynamics constrain abuses of power, while vocal, well-funded interest groups corrupt even the best meaning of government officials.

Companies like Google—along with Facebook and Apple, and in earlier times Standard Oil, IBM, or AT&T—confuse the issue.

These companies control key resources and ecosystems to a significant enough extent that they are de facto governments.  These platform companies have created popular, important ecosystems in which all players must follow their rules—or leave.  Any company that develops an app, an add on, a diagnostic tool, a utility, or some hardware that operates within those ecosystems is an aftermarket player.  Changes to the rules of their foremarket can prove catastrophic—just ask any business whose business has tailed off following a change to Google’s search algorithm, or Zynga, who suddenly had to turn over thirty percent of its revenues to Facebook because or a change in rules about game scrip.

A company that becomes a monopolist—even one that becomes a monopolist honestly, by providing consumers with a decidedly superior service—finds itself relatively unconstrained.  Neither effective competition nor electoral realities can punish it, at least in the short term.  Antitrust regulators may sniff around its periphery and drive up its legal and compliance costs, but even they are charged only with policing selected types of abusive behavior, and their tools of compulsion tend to move slowly through the legal system.  This observation is hardly new.  Friedrich Hayek, best known for his critiques of government power, was actually opposed to all forms of concentrated power—whether in the public sector or the private.

Google has attracted vociferous attackers and defenders precisely because it has crossed from “mere” corporation into quasi-government—and though its power within its sphere of governance is hardly absolute, it is considerable.  As Aristotle noted, there is nothing better than a good king, and nothing worse than a bad king.  A company positioned to govern an important commercial ecosystem—even a company that earned that right of governance—is capable to achieving enormous good, and of imposing enormous harm.

With the Motorola acquisition, Google will become a fundamentally different type of company.  From birth to present, Google has been an information company, capable of forging unencumbered vertical relationships throughout the hardware sector.  Post-acquisition, Google will become a vertically integrated company, whose vertical relationships throughout the hardware sector will be colored by the reality that all hardware manufacturers are at least potential competitors.  How will this shift change the nature of the company?  Antitrust regulators will explore a limited range of such changes in determining whether or not to clear the merger.  Consumers and other companies will be left to find out the overall answer as it unfolds in the real world.

But how should we feel about this announcement?  That depends upon how we feel about Google today., and whether we extend to it the trust that we normally place in corporations or the trust that we normally place in government.  One thing is certain: a powerful entity controlling one of our most important commercial ecosystems has announced that it is about to undergo a personality change.  If that doesn’t make you at least a little bit nervous, you’re not paying attention.

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