Placing Bets on Disruption: A Losing Game?

In 1998, Microsoft was under investigation by the U.S. Department of Justice for antitrust violations, including charges that it held a monopoly position in computer operating systems and used its market power to reach anticompetitive agreements with its partners.

In his defense, Bill Gates wrote a response piece in the June 13, 1998, edition of the Economist. It’s worth quoting:

The current popularity of Windows does not mean that its market position is unassailable. The potential financial reward for building the “next Windows” is so great that there will never be a shortage of new technologies seeking to challenge it.

In a similar vein, Gates told Forbes author Daniel Gross in 1997:

We’ve done some good work, but all of these products become obsolete so fast… It will be some finite number of years, and I don’t know the number — before our doom comes.

This notion that technological change comes swiftly, is unrelenting and has no sympathy for incumbents is a recurring meme. Certainly no one dared predict that Apple would overtake Microsoft back in 1997. But in the late ’90s, the Justice Department thought it should help shape the future of technology. There’s a cautionary tale here.

Recently, the U.S. Department of Justice has set its sights on Apple and a handful of publishers, whom they are accusing of eBook price collusion. Fair enough. Hell, let the EU jump on, too.

The danger here is that these well-intentioned bureaucrats may create another problem by solving the one allegedly at hand. As the esteemed Frederic Filloux points out in, “Ebooks: Defending the Agency Model,” Amazon’s Kindle format presently accounts for 60% of eBook sales. Sure, that’s not monopoly territory.

Yet.

But a ruling that undermines Amazon’s competitors, while giving it a leg up in the eBook market, may very well take things in that direction.

As Bill Gates pointed out many years ago, bureaucrats often tread on soggy ground when they jump into technology wars, especially those of the disruptive kind. Yes, the current battle is also about prices. And market share. But the underlying causality is something quite different. Oh ye regulators, be careful what you wish for…