The frenzy to regulate big technology firms as “monopolies” is starting to spread like influenza across the political spectrum. Turning Web search and social media into government-regulated utilities is an idea now endorsed by Josh Marshall on the Left and Steve Bannon on the Right. It also got the surprising support of neoconservative intellectual Bill Kristol as part of a “No Labels” agenda. So now this idea is coming at us from the left, right, and center.
This is the surest sign that it’s probably a bad idea.
For anyone tempted to get caught up in this “tech monopoly” hysteria, you can inoculate yourself by watching just one movie: the 1998 Tom Hanks-Meg Ryan romantic comedy “You’ve Got Mail.”
Why? Well, it’s a pretty good movie on its own terms. It has a good script, good chemistry between the leads, and it catches Ryan at peak winsomeness. It might also be a good way of compensating if your significant other didn’t find that 35th anniversary screening of the director’s cut of “The Wrath of Khan” quite as romantic as you expected. The film also takes place in a very specific business and technology setting that teaches us an indelible lesson about the permanence of so-called “monopolies.”
“You’ve Got Mail” was conceived as an updated remake of the 1940 film “The Shop Around the Corner.” In the original, two rival shop clerks clash with each other while falling in love through an anonymous correspondence. The remake just shifted the correspondence, quite naturally, to online chatgroups and e-mail. But it expanded on the business rivalry. Instead of making the protagonists rival clerks in the same store, it made Ryan’s character the owner of a small independent book shop, while Tom Hanks is CEO of a big discount chain bookstore—a fictionalized Barnes and Noble—that is about to put her out of business. This is the big Goliath threatening the retail book industry.
The film was released in 1998. Amazon was founded in 1994 and had its IPO in 1997. It was about to crush big discount bookstores—does anyone still remember the other big chain, Borders?—and nobody had a clue. There isn’t a single mention in the film of Amazon or online sales.
But the Internet is mentioned. It’s right there in the title of the movie. “You’ve Got Mail,” for those who are old enough to remember, was a tagline for America Online, the largest Internet service provider in the dial-up era of the 1990s. For millennials, let me explain: we had to connect our computers to a phone line, and an internal modem would place a phone call to a local data center from which it could download information at impossibly slow speeds. The whole thing sounded like this.
AOL is there in the film’s title, because that’s how our protagonists are communicating: by trading e-mails on their dial-up AOL connections.
AOL’s high point was its merger with Time Warner in 2000. It was all downhill, rapidly, from there. Dial-up was quickly surpassed by broadband, and as the Web developed, nobody needed a “Web portal” any more. Again, for younger readers, let me explain. When you managed to get to this exciting new thing called the World Wide Web, how did you know what sites to go to or how to access information? Before the Google search, before Facebook, before Twitter, you went to a Web portal, a launching off point that gathered links and directed you to various sources for news, entertainment, shopping, etc. These Web portals had a huge amount of influence—until they didn’t.
Now here’s the fun part. At the same time nobody was paying much attention to Amazon because Barnes and Noble was going to crush all competitors and control the book business, there was widespread panic about the unstoppable monopoly power of AOL.
AOL was going to gain a monopoly because of its death grip on instant messaging. The “computer editor” for The Guardian worried that this was putting AOL “on its way to world domination.” The AOL-Time Warner deal raised “concerns that its merger would create a media powerhouse that would level competitors, dominate the Internet, and control consumer choice.”
A Wired podcast talked about fears of a Sun-AOL monopoly, but they didn’t call that sort of thing a “podcast” yet because the iPod hadn’t been invented. The audio clip was an MP3 file, and they suggested you listen to it on a Sonique MP3 player from Lycos. The Sonique stopped being produced about a year later. Lycos was a major Web portal, and according to Wikipedia, it was “the most visited online destination in the world in 1999.” It was bought by a multinational conglomerate for $12.5 billion at the peak of the dot-com bubble.
Whatever is left of Lycos was last sold for $36 million in 2010, though that deal seems to have collapsed in acrimony later on. Sic transit gloria mundi.
Meanwhile, AOL has suffered much the same fate. Its remnants, merged with the remnants of Yahoo!—another erstwhile Web portal—were rebranded under an immediately forgettable name as part of Yahoo’s fire sale to Verizon.
The point of this little plunge into the natural history of the Internet is that in retrospect, the business and technology setting of “You’ve Got Mail” was already starting to be outdated by the time it reached theaters, including its David and Goliath story of the small bookstore versus the discount chain store. The overall lesson is the folly of judging “monopoly” power from a static snapshot at one moment in time.
Yes, there are real monopolies out there, which control markets for decades while offering poor service and little innovation. But they are government-imposed monopolies like the U.S. Postal Service or AT&T during the middle of the twentieth century—cases where it was (and in the case of the USPS, still is) literally illegal for a new rival to compete with the favored firm.
But in the free market, as a matter of overwhelming historical record, technology and business relationships aren’t static, and behind one firm’s dominance are always forces gathering to challenge it. If you don’t believe me, watch Meg Ryan and Tom Hanks and quake at the fearsome market dominance of AOL and Barnes and Noble.
Follow Robert on Twitter.