Antitrust – Page 10 – artdiamondblog.com

Google Not Likely to Be “An Unstoppable Juggernaut”

Source of book image: online version of the WSJ review quoted and cited below.

(p. A25) But Messrs. Page and Brin, when they launched Google, had no idea how to make money from it. Two years into their venture, they developed a service that delivered small text ads based on the search terms that a user submitted. As Randall Stross notes in “Planet Google,” his even-handed and highly readable history of the company, the service proved to be a turning point in the history of advertising, offering ads tailored for “an audience of one at the one best moment, when a relevant topic was on the user’s mind.” It also proved to be a goldmine for Google. The company started serving up ads in 2000. In 2002, it had revenues of $400 million; in 2005, $6.1 billion; in 2007, $16.5 billion. Roughly 99% of its income stills springs from those modest text ads that appear at the top of Google’s results page.
. . .
Is Google an unstoppable juggernaut fated not only to “organize all information” — as the company has itself put its goal — but to control it as well? Mr. Stross poses the question but does not answer it. He notes that one of Google’s ambitions is to usher in an age of “cloud computing,” in which all the work we do on our personal computers would actually take place on servers that Google owns. The servers would hold the programs we use and store our data. That image — Google as Skynet from the “Terminator” movies — is a mite unsettling.

Yet the evidence in “Planet Google” suggests that this eventuality is less likely than Googlers might hope. Outside its core search and advertising business, Google has had few successes. Its home-grown products, such as Orkut, Knols and Google Checkout (knockoffs of Facebook, Wikipedia and PayPal, respectively), have largely been failures. Google’s biggest successes have come from acquisitions. Google bought YouTube only after its own attempt at video on the Web, Google Video, crashed and burned. And even the “successful” acquisitions that Google has made — Google Earth, Google Maps, Google Docs and Blogger were all purchases, too — have taken up resources without creating significant revenue.
. . .
Remember, people thought that Microsoft was fated to rule the world, too. Today, the once-feared operating-system giant is fighting to stay relevant. And the evolutionary parallels between Google and Microsoft are strikingly similar: Both hit upon a Big Idea at the perfect moment; both parlayed it into a mountain of cash; and both used the money to embark on a string of expansions that paid few dividends. The years have brought Microsoft back to Earth. They’ll probably do the same to Planet Google.

For the full review, see:
Last, Jonathan V. “BOOKS; Search for Tomorrow.” The Wall Street Journal (Weds., SEPTEMBER 17, 2008): A25.
(Note: ellipses added.)

he book under review is:
Stross, Randall E. Planet Google: One Company’s Audacious Plan to Organize Everything We Know. New York: Free Press, 2008.

European Bureaucrat Forces Businesses to Make “a Smart Business Decision”

If open standards are always “a smart business decision” why do business managers need government bureaucrats to force that decision on them (through fining firms, like Microsoft, that sometimes favor proprietary standards)?
In fact, there are circumstances in which open standards are better for customers, and there are also circumstances in which proprietary standards are better.
To better understand these issues consult Shapiro and Varian’s Information Rules and Christensen and Raynor’s The Innovator’s Solution.

(p. C8) BRUSSELS — The European Union’s competition commissioner, Neelie Kroes, delivered an unusually blunt rebuke to Microsoft on Tuesday by recommending that businesses and governments use software based on open standards.

Ms. Kroes has fought bitterly with Microsoft over the last four years, accusing the company of defying her orders and fining it nearly 1.7 billion euros, or $2.7 billion, on the grounds of violating European competition rules. But her comments were the strongest recommendation yet by Ms. Kroes to jettison Microsoft products, which are based on proprietary standards, and to use rival operating systems to run computers.
“I know a smart business decision when I see one — choosing open standards is a very smart business decision indeed,” Ms. Kroes told a conference in Brussels. “No citizen or company should be forced or encouraged to choose a closed technology over an open one.”

For the full story, see:
JAMES KANTER. “Harsh Words for Microsoft Technology.” The New York Times (Weds., June 11, 2008): C8.

References mentioned:
Christensen, Clayton M., and Michael E. Raynor. The Innovator’s Solution: Creating and Sustaining Successful Growth. Boston, MA: Harvard Business School Press, 2003.
Shapiro, Carl, and Hal R. Varian. Information Rules: A Strategic Guide to the Network Economy. Boston, MA: Harvard Business School Press, 1999.

Optimal Size of a Firm Depends on Trial and Error and Changing Circumstances

Rosenberg and Birdzell give an uncommon reason for economies of scale. This illustrated that the common list of reasons is not written in stone. As trial and error yields new ways of organizing business, the optimal size firm will shift back and forth.

(p. 157) The increase in both size and complexity of ironworks that followed throughout the nineteenth century was motivated by a desire to achieve economies in the use of fuel. As to size, within the practical limits of construction, large furnaces lose less heat by radiation than small furnaces and so are more fuel-efficient.

Source:
Rosenberg, Nathan, and L.E. Birdzell, Jr. How the West Grew Rich: The Economic Transformation of the Industrial World. New York: Basic Books, 1986.

Competition in an Ice Cream Duopoly

“Jose Martinez parked his Good Humor truck Tuesday at an Upper West Side corner that is said to be Mister Softee territory.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. C13) On Tuesday afternoon, new battle lines were drawn on the Upper West Side at the corner of Columbus Avenue and 83rd Street, where Ceasar Ruiz, 50, the Mister Softee man, said he had been selling ice cream without any competition for more than eight years.
He said his routine was the same every season. He arrives at the corner by about 2:30 each afternoon, mostly to catch the students getting out of Public School 9 and the Anderson School, just a few yards from the corner. He stays for about an hour and a half, then moves to his next location, he said.
But Tuesday afternoon was different. When he arrived, there sat the freshly painted Good Humor truck and Mr. Martinez, decked out in a crisp uniform, ringing his bell.
“I sell Good Humor, too,” Mr. Ruiz said. “But his is more cheap. I sell bar for $2. He might sell for $1.50. Not good. Not good.”
Over the din of children clamoring for Dora the Explorer ice cream bars and Mega Missile Pops (red, white and blue rocket-shaped popsicles), Mr. Martinez rang his bell louder, openly competing for customers.
“I’m trying to make a dollar just like he is,” said Mr. Martinez, his voice rising loud enough for the other driver to hear. “He’s telling me I have to go. But he doesn’t own this spot.”
. . .
About five minutes before 4 o’clock, Mr. Ruiz leaned out of his Mister Softee truck, looking over at Mr. Martinez.
“Tomorrow, I’m going to beat him here,” he said. “I’ll be the first one here.”

For the full story, see:
TRYMAINE LEE. “It’s Still Spring, but the Ice Cream Truck War Revs Up.” The New York Times (Weds., May 14, 2008): C13.
(Note: ellipsis added.)

Google Does Evil: How to Succeed by Lobbying the Regulators

(p. A14) You’re saying to yourself, haven’t Google and friends been gnashing their teeth over the landline practices of the Verizons and Comcasts, demanding “net neutrality” regulations to be erected against crimes to be named later? Yes, and without much success. Consider a recent Rensselaer Polytechnic Institute study that found that imposing Google’s idea of “net neutrality” (i.e., restricting a network operator’s ability to prioritize urgent and non-urgent data) would end up cutting a network’s peak capacity in half.
Now Google and friends are turning to wireless, which they hope will prove a softer target. Here operators traditionally have built networks for the restricted purpose of letting customers make voice calls with an operator-supplied cellphone. But most operators have also started rolling out all-purpose broadband on their wireless networks, albeit high-priced and painfully slow (evidence of their need to ration capacity carefully to protect higher-priority voice traffic).
Verizon offers BroadbandAccess, a service that allows a customer, with a laptop card, to use Verizon’s wireless network for Web surfing. AT&T, T-Mobile and Sprint offer similar services. Likewise, Sprint and Clearwire are building out a new kind of wireless network, WiMax, for truly fast mobile broadband.
That’s not good enough for Google and its allies, who want the government to require wireless operators to provide unrestricted Web surfing to buyers of basic phone plans. Don’t be misled by the “net neutrality” and “open access” masquerades. This is nothing but business-model chauvinism, aided not a little by the mental clottedness of regulators, who evidently can be led to believe that any network operating on digital principles must be packaged and sold to customers in only one way.
. . .
Make no mistake: Google understands that restricting a wireless operator’s ability to design its own business model can, by definition, only reduce its incentive to invest. But Google has bigger fish to fry. It wants to make sure it can continue to free-ride on your broadband subscription bills, even in the mobile world. It wants to make sure it won’t have to share the proceeds of its massive search and advertising dominance with suppliers of network capacity.
Most of all, it wants to replicate in mobile search and advertising the overpowering position it has achieved in the fixed broadband world — something that might not be possible if wireless operators are left any opportunity to carve out a business model other than as simply suppliers of the proverbial “dumb pipe.”

For the full commentary, see:
Holman W. Jenkins, Jr. “Business World: Sort of Evil.” Wall Street Journal (Weds., July 18, 2007): A14.
(Note: ellipsis added.)

Easily Available Capital and Technology Lower Barriers to Entry in Oil Industry

"Cobalt scientists analyze data to help pinpoint oil deposits." Source of caption and photo: online version of the NYT article cited below.

(p. 1) HOUSTON. JOSEPH H. BRYANT, still boyish-looking at 51, jostles with glee among tens of thousands of people here at the Offshore Technology Conference, one of the energy industry’s biggest trade fairs. He is surrounded by newfangled technologies occupying more than half a million square feet of display space: drills stuffed with electronic sensors, underwater wells shaped like Christmas trees, mini-submarines and pipes, pumps, tubes, gauges, valves and gadgets galore.

“There is every little gizmo you need to make this business work,” Mr. Bryant says, joyously. He stops at a plastic model of an offshore oil rig, an exact replica of a huge platform he commissioned while running BP’s business in Angola a few years ago. “I love this stuff.”

Like the pieces of a giant puzzle, the parts showcased here could fit together and build an oil company — and that’s exactly what Mr. Bryant set out to do two years ago after a 30-year career directing energy projects for the likes of Amoco, Unocal and BP. With a team composed largely of retired energy executives, he wants to hunt for oil in the deep waters of the Gulf of Mexico or offshore West Africa, challenging Big Oil in its own backyard.

The American oil patch, once left to languish during an extended period of low oil prices, is on the rebound. Wildcatters like Mr. Bryant are ready to pounce. With oil prices now hovering around $60 a barrel — three times higher than they were throughout the 1990s — the industry is expanding at a pace last seen decades ago.

“The oil industry has changed dramatically in the last 20 years,” Mr. Bryant says. “Barriers to entry have dropped significantly. It doesn’t matter if you’ve been in the business 100 years or 100 days.”

Easily available capital and technology, once the preserve of traditional oil companies, are reordering the business. Investors are lining up to finance energy projects while leaps in computing power, imaging tech-(p. 7)nology and collaborative online networks now allow the smallest entities to compete on an equal footing with the biggest players.

“There’s a lot of money out there looking for opportunities,” said John Schaeffer, the head of the oil and gas unit at GE Energy Financial Services. “It seems like everyone wants to own an oil well now.”

Still, oil exploration remains a costly business fraught with peril. While the odds have improved, success is elusive; three-quarters of all exploration wells come up dry, either because there is no oil or because geologists miss its exact location. All of which means that Mr. Bryant’s start-up, Cobalt International Energy, which plans to begin drilling next year, faces formidable hurdles.

“There’s no sugar-coating this — at the end of the day, it’s a high risk venture,” Mr. Bryant says. “Financially, we’re definitely wildcatting. It’s either all or nothing.”

For the full story, see:

JAD MOUAWADA. "Wildcatter Pounces; Oil Riches Lure the Entrepreneurs." The New York Times, Section 3 (Sun., May 20, 2007): 1 & 7.

Wildcatter entrepreneur "Joseph H. Bryant started Cobalt." Source of caption and photo: online version of the NYT article cited above.

Anti-Wal-Mart is Anti-Free-Choice

Source of logo/header: http://www.muddycup.com/mudlane/img/header.jpg

The article excerpted below reveals the soul of much of the anti-Wal-Mart movement. It is not anti-big; it is anti-competition and anti-free-choice.

How in the world did a guy who started his first coffee shop on Staten Island six years ago and now runs five others in far-flung Hudson Valley towns become the moral equivalent of Wal-Mart and Starbucks? “Well, it’s now official,” he announced last month on the Web site that promotes his Muddy Cup coffeehouses. “I am now head of the evil empire.”

. . .

And now the talk of New Paltz has to do with something far more important than mere marriage — coffee. More specifically it’s whether Mr. Svetz is plotting an act of entrepreneurial imperialism by presuming to open one of his Muddy Cup coffeehouses next door to the ultimate green icon in town, the funky 60 Main coffee shop operated in conjunction with the nonprofit New Paltz Cultural Collective.

. . .

Little did he know. As word filtered out he began receiving a blizzard of e-mail messages from 60 Main proponents, reacting to an urgent appeal from the collective. The messages threatened a boycott and told him to stay home. “If we can stop Wal-Mart we can stop you,” said one.

“We do not want to become yet another small town taken over by huge corporations,” read another.

. . .

Mr. Svetz is still stunned by the whole thing, particularly his sudden status as a giant corporation. He says that just as lots of bars coexist in town, several coffee shops can too. Maybe he’s right. Maybe he’s not. He’s not Wal-Mart, but maybe it’s fair to ask how many artist-friendly coffeehouses the village can support. But it’s hard to argue when he says that even in New Paltz, businesses generally have to compete to survive, not find a way to build a Berlin Wall around town.

“When a community starts building walls and saying you don’t belong here or you don’t think like we do, that can’t be a good thing,” he said.

For the full story, see:

PETER APPLEBOME. "Coffee Puts Laid-Back Town on Edge." The New York Times, Section 1 (Sun., March 4, 2007): 21.

(Note: ellipses added.)

Would Consumers Be Better Off with No Satellite Radio?

Source of graphic: online version of the NYT article cited below.

It appears as though the market for satellite radio may not be big enough for two firms to profitably survive, although one merged "monopoly" firm might survive. But the antitrust government authorities appear to seriously be considering to forbid the merger.

If they do so, they will be presuming to tell the consumer that she is better off with no satellite radio, than with one merged "monopoly" satellite radio.

Note the secondary issue of whether it’s appropriate to call a merged company a "monopoly." If the "industry" is defined as "satellite radio," then the merged company would be a monopoly. If the "industry" is more broadly defined as "broadcast radio," which would include AM, FM, and internet stations, then the merged firm would be a long way from a monopoly.

But either way, the government should stay out of it.

(NYT, A1) The nation’s two satellite radio services, Sirius and XM, announced plans yesterday to merge, a move that would end their costly competition for radio personalities and subscribers but that is also sure to raise antitrust issues.

The two companies, which report close to 14 million subscribers, hoped to revolutionize the radio industry with a bevy of niche channels offering everything from fishing tips to salsa music, and media personalities like Howard Stern and Oprah Winfrey, with few commercials. But neither has yet turned an annual profit and both have had billions in losses.

. . .

Questioned last month about a possible Sirius-XM merger, the F.C.C. chairman, Kevin J. Martin, initially appeared to be skeptical, but later said that if such a deal were proposed, the agency would consider it.

In a statement yesterday, Mr. Martin acknowledged that the F.C.C. rule could complicate a merger but said the commission would evaluate the proposal. “The hurdle here, however, would be high,” he said.

The proposed merger, first report-(p. C2)ed yesterday by The New York Post, promises to be a test of whether regulators will see a combination of XM and Sirius as a monopoly of satellite radio communications or whether they will consider other audio entertainment, like iPods, Internet radio and HD radio, to be competitors.

“If the only competition to XM is Sirius, then you don’t let the deal through,” said Blair Levin, managing director of Stifel Nicolaus & Company and a former F.C.C. chief of staff. But Mr. Blair said he expected the F.C.C. to approve the merger.

For the full NYT story, see:

RICHARD SIKLOS and ANDREW ROSS SORKIN. "Merger Would End Satellite Radio’s Rivalry." The New York Times (Tues., February 20, 2007): A1 & C2.

(Note: ellipsis added.)

(WSJ, p. A1) But because XM and Sirius are the only two companies licensed by the Federal Communications Commission to offer satellite radio in the (p. A13) U.S., the deal is likely to face significant regulatory obstacles.

Broadcasters said yesterday that they will fight the proposed merger, and FCC Chairman Kevin Martin released an unusually grim statement saying that the two companies will face a "high" hurdle, since the FCC still has a 1997 rule on its books specifically forbidding such a deal which would need to be tossed. The transaction also requires the Justice Department’s blessing.

Indeed, XM and Sirius may be rushing into a deal because they sense the regulatory terrain will only get tougher. People close to the matter said that the two companies acted because the climate is already changing with the election of a Democratic-controlled Congress. Future developments — such as the possibility of a Democratic president — could make it even harder for the proposed merger to pass muster.

In their strategy, the two companies may be subtly acknowledging the risks before them: By conceiving their deal as a merger of equals and declining to say which company name would emerge ascendant, they minimize the business risks should the deal fall through. If, for example, the combined company were to be dubbed Sirius, XM could be vulnerable to a decline in sales during a regulatory review period that could last a year. A person familiar with the negotiations said the two companies have set March 1, 2008, as their "drop-dead date," after which either side can walk away if approval is not granted.

The coming regulatory battle is likely to focus on the definition of satellite radio’s market. The two companies are expected to argue that the rules established a decade ago, which require two satellite rivals to ensure competition, simply don’t apply in today’s entertainment landscape.

Since 1997, a host of new listening options have emerged, making the issue of choice in satellite radio less important for consumers. Executives cite a new digital technology called HD radio, iPod digital music players, Internet radio and music over mobile phones as competitors that didn’t exist when the satellite licenses were first awarded.

For the full WSJ story, see:

SARAH MCBRIDE, DENNIS K. BERMAN and AMY SCHATZ. "Sirius and XM Agree to Merge, Despite Hurdles For Regulators, Deal Pits Competition Concerns Against New Technology." The Wall Street Journal (Tues., February 20, 2007): A1 & A13.

(Note: ellipsis added.)

Source of graphic on left: online version of the NYT article cited above. Source of graphic on right: online version of the WSJ article cited above.

Antitrust Cases Can Hurt (Even Those that Get Dropped)

The antitrust lawsuit against IBM was dropped, and that against Microsoft result in the imposition of only minor legal remedies. So some may conclude that IBM and Microsoft bore little ill effects from the suits. But such suits can reduce morale, result in loss of talent, and restrain the efficiency, innovativeness and competitiveness of the prosecuted companies.

In the case of IBM, Lou Gerstner has made some strong, and plausible, comments on the deleterious effects of U.S. antitrust action:

(p. 118) The other critical factor—one that is sometimes overlooked—is the impact of the antitrust suit filed against IBM by the United States Department of Justice on January 31, 1969, the final day of the Lyndon B. Johnson administration. The suit was ultimately dropped and classified "without merit" during Ronald Reagan’s presidency, but for thirteen years IBM lived under the specter of a federally mandated breakup. One has to imagine that years of that form of scrutiny changes business behavior in very real ways.

Just consider the effect on vocabulary—an important element of any culture, including corporate culture. While IBM was subject to the suit, terms like "market," "marketplace," "market share," "competitor," "competition," "dominate," "lead," "win," and "beat" were systematically excised from written materials and banned at internal meetings." Imagine the dampening effect on a workforce that can’t even talk about selecting a market or taking share from a competitor. After a while, it goes beyond what is said to what is thought.

The reference to the book, is:

Gerstner, Louis V., Jr. Who Says Elephants Can’t Dance? Leading a Great Enterprise through Dramatic Change. New York: HarperCollins, 2002.

Mellon Allowed Great Innovation By Restraining Intrusive Government

(p. W4) Though scarcely known today, Andrew W. Mellon was a colossus in late 19th-century and early 20th-century America. He would come to play a major role in the management of the American economy, but first he built one of the country’s great fortunes, one that would rank him today with Bill Gates and Warren Buffett. He is now the subject of a comprehensive, if slightly grudging, biography by David Cannadine, the distinguished British historian.

Mellon is not associated with any single industry, in the way that Andrew Carnegie and John D. Rockefeller are. He was a venture and equity-fund capitalist, one of the first to function on a major scale. He and his younger brother, Dick, took over their father’s Pittsburgh-based investment and coal-mining business and expanded it into many fields, including copper, oil, petrochemicals and aluminum (Alcoa).

No banker was as gimlet-eyed; Mr. Cannadine shows Mellon shrewdly and coldly calculating every investment prospect. Yet few venture capitalists were as daring. In the 1890s, when Rockefeller was ruthlessly monopolizing the petroleum industry, Mellon didn’t flinch from setting up a competing refinery. When Mellon finally sold out to Rockefeller, he did so at a considerable profit. Several years later he came back to oil and eventually built Gulf into an industry giant.

Original Supply-Sider

But Mellon was more than an entrepreneurial industrialist. In his mid-60s he became a famous — and infamous — public servant, performing as Treasury secretary under three presidents, from 1921 to 1932. He was the original supply-sider, pushing tax cuts under Presidents Harding and Coolidge. He argued that the high tax rates left over from World War I were depressing economic activity; that lower rates would turn the economy around; that high-income earners would end up paying more and that low-income earners would be removed from the tax roles entirely.

His program was a fantastic success. The top rate was cut to 25% from 77%. The rich did indeed pay more, while low- and middle-income earners saw their tax bills shrink to nothing or next to nothing. The economy boomed. The U.S. outstripped more heavily taxed nations, such as Britain and France. Mellon also pushed painstakingly for the creation of an international monetary system to replace the one shattered by World War I. The big challenge was huge Allied war debts to the U.S. and onerous German reparations. Mellon negotiated the easiest terms that were politically possible so that trade and economies could revive.

We sometimes forget just how dynamic the 1920s were in America. The automobile became a commonplace item for working Americans; labor-saving devices, such as the washing machine, grew ever more common as well; movies and radio provided mass entertainment as never before (an experimental television broadcast was carried out in 1927); and stock ownership widened to include more members of the middle class.

It was a time of great innovation and inventiveness, and in a sense Mellon presided over it all by allowing it to happen without intrusive government policies.

For the full review, see:

STEVE FORBES. "BOOKS; The Man Who Made the Twenties Roar." The Wall Street Journal (Fri., October 6, 2006): W4.

Reference for the book:

David Cannadine. MELLON. Knopf, 2006. 779 pages, $35

Source of book image: online version of the WSJ article cited above.

United States Cardiologists Fail to Prescribe Fish Oil, Despite Low Cost, Safety, and Evidence of Efficacy

Source of graphic: online verison of the NYT article quoted and cited below.

United States cardiologists are reluctant to prescribe fish oil, wanting more definitive data on efficacy. But a lack of definitive data on efficacy doesn’t stop them from performing costly and risky procedures such as the application of stents. Possibly relevant: installing stents is much more lucrative for cardiologists, than prescribing fish oil. Doctors are not bad people, but like most of us, they respond to financial incentives.

(p. D5) ROME — Every patient in the cardiac care unit at the San Filippo Neri Hospital who survives a heart attack goes home with a prescription for purified fish oil, or omega-3 fatty acids.

“It is clearly recommended in international guidelines,” said Dr. Massimo Santini, the hospital’s chief of cardiology, who added that it would be considered tantamount to malpractice in Italy to omit the drug.

In a large number of studies, prescription fish oil has been shown to improve survival after heart attacks and to reduce fatal heart rhythms. The American College of Cardiology recently strengthened its position on the medical benefit of fish oil, although some critics say that studies have not defined the magnitude of the effect.

But in the United States, heart attack victims are not generally given omega-3 fatty acids, even as they are routinely offered more expensive and invasive treatments, like pills to lower cholesterol or implantable defibrillators. Prescription fish oil, sold under the brand name Omacor, is not even approved by the Food and Drug Administration for use in heart patients.

“Most cardiologists here are not giving omega-3’s even though the data supports it — there’s a real disconnect,” said Dr. Terry Jacobson, a preventive cardiologist at Emory University in Atlanta. “They have been very slow to incorporate the therapy.”

For the full story, see:

ELISABETH ROSENTHAL "In Europe It’ s Fish Oil After Heart Attacks, but Not in U.S." The New York Times (Tues., October 3, 2006): D5.