Is the Google breakup coming?
Summary
Government shouldn’t force it, but every company should know how to spin off.
Should the government break up Google? Judge Amit Mehta of the U.S. District Court for the District of Columbia ruled last month that “Google is a monopolist, and it has acted as one to maintain its monopoly." Remedies could include breaking up Google. That would be a big mistake.
We can disagree on the merits of the case—whether Google paying Apple $18 billion a year to be the iPhone’s default search engine is monopolistic. Google says it will appeal. Kent Walker, Google’s president of global affairs, told me, “Our basic argument is that people use Google Search because they choose to, not because they have to." Judge Mehta even admitted, “Apple and Mozilla occasionally assess Google’s search quality relative to its rivals and find Google’s to be superior."
So where is the consumer harm? Governments shouldn’t penalize companies for success. “Big is bad" isn’t sound policy, and government-driven breakups often fail. I worked at Bell Labs inside AT&T during its 1982 breakup—ending up with the same desk, same job, under three different company names. The breakup separated long distance from seven local Baby Bells. Did it matter? Probably not. The market, over time and like Humpty Dumpty, put the increasingly obsolete regulated Bells back together again, just as cellular was disrupting telecom.
On the same day in 1982, the government decided not to break up mainframe-computer giant IBM. Competition from servers and PCs ended up neutering IBM—thank you, Mr. Market—and the company had 22 consecutive quarters of down sales ending in 2018. The stock is where it was in 2013.
So no, unless there is consumer harm, I’m strongly against government breaking up companies. But I am very much in favor of companies breaking themselves up.
Years ago I wrote about monkey traps: Put a banana inside a coconut, and the monkey reaches in to grab it, but then it can’t escape because it’s too stupid to let go of the banana. Long distance was the banana for AT&T, funding other mediocre businesses until competition decimated prices. IBM’s mainframes were hugely profitable bananas. IBM should have spun out its minicomputers and PCs to fight for themselves in the marketplace.
I don’t think big is bad for consumers, but it can be lethal for companies, which are too often wedded to dated ideas and cash-gushing bananas. New ideas die at big companies, which lack a startup culture. All companies, to wring out inefficiencies, should jettison divisions and break themselves up—but, I want to emphasize, not be forced by governments to break up.
Google knows about stunting innovation. In his book, “Genius Makers," Cade Metz noted that early artificial-intelligence coders at Google had to sneak in machine-learning hardware and hide it behind their desks because those running the profitable search data centers wouldn’t allow the new funky machines. It took an intervention by co-founder Sergey Brin, and now this AI hardware is everywhere. OpenAI got a jump on generative AI because Google’s Gemini wasn’t ready for prime time (neither was OpenAI), but big companies can’t take the reputational risk.
Self-directed breakups don’t always work, but many do. HP split its profitable printer (really ink) business from other enterprise products. Johnson & Johnson split Band-Aids from its drugs and medical devices division. General Electric, albeit late, spun out its healthcare division and recently split aerospace and power generation. The smartest thing eBay has done in 20 years is spin out PayPal. Last week saw stories of potential Intel and Topgolf breakups.
Should “monopolist" Google dump YouTube? Or its Android smartphone operating system? Or open its data cache to all takers? Maybe, but it shouldn’t be forced to. Google probably should have spun out YouTube to shareholders years ago. Or set up a stand-alone phone company to compete with Apple head to head. Now government bureaucrats might force changes that are almost guaranteed to be wrong, late and damaging to consumers as markets change.
AI requires massive amounts of data. While it made sense early on for AI to be tied to search, the two will soon compete. Maybe it’s best for Google to set up a separate AI company pre-emptively that can, via market pricing, determine how much to pay for data and how much to charge for its service, instead of crippling AI to minimize damage to Google’s search cash cow.
Every company should get good at spinning off and even acquiring back divisions. Facebook should jettison its virtual-reality money loser and maybe its AI effort as well. Microsoft competes with many data-center customers, easy to fix by spinning out Azure data services. Amazon Prime Video and Apple TV+ streaming efforts aren’t core competencies, and they’re heavily subsidized by data-center and phone profits. Let go of the banana. Yes, breaking up is hard to do, but why wait for the market (or worse, government busybodies) to do damage first?
Write to kessler@wsj.com.
