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| Tuesday, July 06, 2004 |
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Thomas Hazlett: Google's message for regulators
By Thomas Hazlett
Published: July 5 2004 18:49 | Last Updated: July 5 2004 18:49
Being a subscriber to Yahoo Mail, I am accustomed to receiving friendly messages. One such snappy communiqué was delivered to my inbox on June 10: "You are near your quota, as you are currently using 99.1MB of your 100.0MB storage quota. If you do not take action soon, you will not be able to receive any more e-mail in your Yahoo Mail account."
This electronic nudge was the weekly cue to delete files in my web e-mail memory. How surprised was I to find, then, a much more upbeat capacity assessment transmitted on June 23: "Thanks for being a loyal Yahoo Mail user. To show our appreciation, we've expanded your Extra Storage service to include all the benefits of the improved Yahoo Mail Plus, at no additional cost to you." My 100 megabytes of memory was now 2 gigabytes. Teetering at the brink of overload, I felt fresh and relaxed at 4 per cent.
My loyalty to Yahoo has surely been rewarded, making me feel a bit sheepish: I had recently, in fact, been pondering a switch to the fabulous new Google program which also features oodles of storage and some really cool stuff. I shall resist wallowing in the guilt, however, by remembering that millions of others are equally despicable - including those Microsoft Network e-mail users who have just seen their 2 MB free storage quotas relaxed to 250 MB, a windfall of 12,400 per cent.
Economists and cynics will ascribe the magnanimous mood of e-mail operators to market forces. The gathering Google storm, gliding rapidly toward its initial public offering, is casting a large shadow. It is pushing a motivational cold front into the space occupied by incumbent service providers. The extraordinary improvements in service all around illustrate the power of innovative entrants to disrupt.
They also underscore the limits of government regulation. By offering 2 GB for the price of 100 MB, the competitive rivalry now on display highlights the implausibility of administratively determined efficiency. The e-mail market looked perfectly functional and workably competitive to antitrust analysts prior to the recent seismic shifts. Innovation by decentralised entrepreneurs has revealed a new competitive equilibrium some orders of magnitude north. And these volcanic eruptions were triggered by Google, a company not known to be in the e-mail business.
The insight produced is not that markets out-perform Soviets, or that market entry can be surprising and tumultuous - all of which is true, but not news. The remarkable aspect of this emerging war over e-mail service is that it is fought at the core of markets judged by many to be wracked by monopoly, resistant to change and immune to challenge.
The massive antitrust case launched against Microsoft on May 18 1998 ended last week with a whimper. A federal appeals court has endorsed a settlement reached between the software company and the US Department of Justice. Six years of legal dispute, including a government victory on some important charges, have ended. Microsoft, yet in one piece, continues to dominate market share with Internet Explorer (having vanquished its browser rival, Netscape), with its Windows PC operating system (even as Linux continues to generate buzz and Apple refuses to die) and with its now standard office software programs Word (word processing), Excel (spread sheets) and Power Point (3 million MBAs can’t be wrong). Robert Bork, representing anti-Microsoft interests challenging the settlement in court, was disgusted with the result: “It appears on first reading that Microsoft has been cleared to continue its campaign of predation…”
So this is where Google comes in. Despite the fact that Microsoft and Yahoo are both moving aggressively to attack this space, Google’s search engine has performed brilliantly. Without the leverage of incumbency, the outsider has offered consumers value. Consumers have flocked to the innovative application; Wall Street now rushes to fund expansion. While in the cross-hairs of Microsoft’s “campaign of predation”, Google has developed a business plan that will soon be capitalised at something like $25 billion.
Make no mistake: Google strives to dominate. It aims to offer technology so compelling that rivals do not just lose market share, they lose the market. The incentive to seize and occupy a position of monopoly is what drove Microsoft frantically to develop highly functional browserware, distributing it to millions of Windows users free of charge so as to fend off the tempestuous Netscape. It is what fuelled Google’s invention of a superior search engine, and it is what now drives it to offer a spectacularly more generous e-mail service. This is the productive violence of creative destruction, and its awesome power is only faintly hinted at by inbox notices announcing memory windfalls of 12,400 per cent.
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| posted by Perimbean @ 8:26 AM |
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