Dec 11, 2020

What can Facebook learn from the attempt to break up Microsoft?

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The antitrust case was "a real turning point for Microsoft," says Margaret O'Mara of the University of Washington.

The Federal Trade Commission and almost every state are calling for Facebook to be broken up in what is probably the most groundbreaking tech antitrust lawsuit since Microsoft was sued in the 1990s. So I thought I’d take a look back at that Microsoft case to see if it offers any lessons for today’s tech giants.

It’s the topic for “Quality Assurance,” the segment where I take a deeper look at a big tech story. I spoke with Margaret O’Mara, a history professor at the University of Washington and author of the book “The Code: Silicon Valley and the Remaking of America.” The following is an edited transcript of our conversation.

A photo of Margaret O’Mara, a professor of history at the University of Washington and author of the book “The Code: Silicon Valley and the Remaking of America.”
Margaret O’Mara (Photo courtesy of Jim Garner)

Margaret O’Mara: I think that the case was a real turning point for Microsoft. Microsoft came into the lawsuit with a very minimalist lobbying operation. When the FTC started looking into Microsoft’s practices at the beginning of the 1990s, Bill Gates was famously dismissive about it [and] said, “The worst thing that can happen is I fall down the steps of the FTC and bust my head open and kill myself.” And afterwards, Microsoft learned the hard way that it couldn’t just brush off Washington regulators. So Microsoft spent a good deal of time and continues to battle regulators. And that really changed the company and its attitude pretty profoundly.

Molly Wood: Right. And Bill Gates has since then said that Microsoft, the company, lost a decade of innovation fighting on those two fronts. Do you think that’s true?

O’Mara: I think so. I think what it did is it slowed Microsoft’s roll. Microsoft, and Gates in particular, were famously aggressive and competitive and had become so successful. [It] became a company by just moving fast and getting past the competition and doing what it took to dominate the market. And with the Department of Justice case and other governmental actions against Microsoft, it kind of forced it to cool its jets a bit, and to not be as aggressive, to not move as aggressively into new realms. The lost decade of innovation, I think there were a lot of things going on. It had to do with technology, it had to do with the fact that Microsoft was continuing to make enormous amounts of money from Office and Windows. When you have legacy businesses, core businesses that are doing very well, it also becomes harder to prioritize breaking into new realms.

Wood: So maybe that was true, but it could also be a little bit of an excuse?

O’Mara: Yeah.

Wood: So what does that tell us about Facebook over the next, I don’t know, decade, however long it takes this case to go? I mean, it still feels like we are opening up a new chapter in the history of the tech industry, right?

O’Mara: We are, and funnily enough, companies like Facebook, they are as big as they are because Microsoft then was the Goliath and the internet companies, Silicon Valley companies, were the Davids, the scrappy little guys who were trying to get some airspace. And federal regulators very consciously decided to not regulate the industry very much and allow it to grow, allow it to self-regulate. And so Facebook is Facebook, in part because it’s grown up in this very loosely regulated environment that they were seen as the young upstarts, the innovators.

Wood: Is there a bit of a lifecycle, do you think, to companies? Like, they can only maybe get so big before they either trip on themselves or have some action like this, and that sort of creates the space for competitors to flourish?

O’Mara: I do think there’s a life cycle. Every company becomes a dinosaur at some point, as much as they would like to not believe it. But I think what’s really critical here is to not assume that the market takes care of itself. Right now, you have these very, very large companies that do have control. They have immense amounts of cash, they have scale, they have immense amounts of data, that the barrier to entry for new entrants has become much harder. So it’s going to be a really interesting battle to come.

Wood: Interesting. So you’re saying that we shouldn’t necessarily assume that, although there are parallels to the Microsoft case, this will proceed in the same way, where this lawsuit is very distracting and expensive, and it creates space underneath the canopy for little green shoots?

O’Mara: Yeah, we shouldn’t assume anything. … We saw this both with Microsoft and with IBM, which battled for 13 years with the Department of Justice. And that it does not only kind of force the company to slow itself down and not be as aggressive and not acquire and buy all the companies, you know, do what it had been doing. And that does create room and space. But the challenges posed by what today’s big tech companies — Microsoft is still one of them, but interestingly enough, not a target anymore of regulators and not this sort of in the sights of the political sides of the folks on Capitol Hill and in Washington that are battling Big Tech. But the other four big ones, they’re presenting different kinds of competitive challenges, and they are dominating. There are many of them, not just one. In 1998, it was just Microsoft. And there were a lot of little guys. And now, it’s a lot of big guys.

Wood: One thing we did see in the Microsoft case is that there was a lot more focus on Bill Gates himself. And there’s that kind of famous hearing where he was super prickly and defensive. And you could almost argue that that case did him in a little bit. And I wonder, do you think that Mark Zuckerberg will become the focus in the same way and in a way that could finally shake his hold on Facebook?

O’Mara: Yes. I mean, I think he’s the central actor in this drama in the way that Bill Gates was for the Microsoft trial. I think in contrast, Mark Zuckerberg already started along his path of political education a little further along than perhaps Gates was at the start of the DOJ trial in the late ’90s. It’s interesting thinking about Bill Gates, who was sort of painted as the villain in that drama then. This is also the same time he starts his foundation. He kind of reinvents himself, afterwards, as a philanthropist. He stays on [at] Microsoft for several years, afterwards, but then formally retires within the decade and moves on to the next stage of his life. But Zuckerberg looks to Gates as a mentor, and they clearly have a relationship. And Zuckerberg and his wife, Priscilla Chan, have already made their own foray into philanthropy. So there are some really striking parallels. And the same thing happened, of course, 120 years ago with people like John D. Rockefeller and Andrew Carnegie [who] started foundations and tried to, in some ways, not only use their wealth in other ways but rehabilitate their public image.

Facebook CEO Mark Zuckerberg testifies before the House Judiciary Subcommittee on Antitrust, Commercial and Administrative Law on Online Platforms and Market Power in the Rayburn House office Building, July 29, 2020 on Capitol Hill in Washington, DC.
Facebook CEO Mark Zuckerberg testifies in a House antitrust hearing in Washington, D.C., on July 29. (Mandel Ngan-Pool/Getty Images)

Related links: More insight from Molly Wood

One more antitrust investigation was filed against Facebook this week, this time, in Germany, over how the company forced Oculus users to have a Facebook account and said it would end support for existing users having separate accounts by 2023. Something I will admit that I personally, also, found very annoying. Facebook responded to the lawsuit, according to TechCrunch, by saying it would cooperate, but noting that Oculus headsets aren’t available to buy in Germany. There’s also a take from the Verge that suggests Instagram would be better off without being part of Facebook. Possibly true if you read Bloomberg writer Sarah Frier’s book about Instagram, where it’s clear that Facebook doesn’t want it to cannibalize the Big Blue, and arguably starves it a little bit even as its revenues have grown.

But, honestly, let’s just stop talking about Facebook and everything else for a minute and enjoy a moment of relatable delight from my interview with Margaret O’Mara, during which my dogs started barking. I tried to make sure my kid stayed quiet during his class in the other room. But then her daughter started playing the flute and Margaret hurried up and shushed her because she said when her daughter plays the flute, her dog howls along, and she was kind enough to record it for us, and it made me laugh so hard, a little pee came out.

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Molly Wood Host
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