The downside comes much later, as the monopolist ages and starts to crowd out potential new competitors without delivering new value. As legal expert and author Tim Wu said, monopolies "tend to be good-to-great in the short term and bad-to-terrible in the long term."
Unlike the monopolies of old, however, platforms today are highly competitive. This difference results from the different mechanics of platform markets compared with traditional ones. Platforms compete based on not their assets but rather their networks of users. Users today can migrate much quicker than productive capacity could in the 19th and 20th centuries, as they are locked in by the value the platform delivers, not the assets it owns.
As a result, a platform that dominates one industry is still vulnerable to attack from platforms that have similar user bases. This process of platforms competing across industries is surprisingly common. For example, Amazon effectively created the e-book industry in the US. Yet after Amazon proved out the market, both Google and Apple have moved from adjacent industries and become competitors. And, as noted earlier, Alibaba used its rapidly growing product marketplace to attack Baidu's dominance in product search.
Additionally, the speed of technological change today means that, absent government enforcement, modern monopolies aren't likely to last nearly as long as their predecessors. Barriers to entry in most industries are far lower than they were a century ago, while the boundaries between industries also are much more fluid than they have been in the past.
Although networks today do create the strongest and most defensible moats, they don't create the same barriers to entry as past monopolies that required vast investment in physical infrastructure in order to succeed. AT&T's domination of the telephone industry lasted from the beginning of the 20th century until its 1984 breakup. Not surprisingly, in its later years, the company delayed or killed many important innovations in an effort to keep new entrants out of the market.
Yet no platform today is likely to dominate an industry for anywhere near that long. Start-up costs are at an all-time low (thanks, it should be said, in no small part to the effects of many platform businesses). And new businesses today are able to grow faster than ever before.
These changes mean that even if an industry is consolidated around a single dominant platform at any given time, there is always a looming threat of entry by a new firm or displacement by another successful platform. Because of the low cost of entry, this threat is constant and credible in a way it was not a hundred years ago.
This competition between established platforms and new entrants is exactly what befell Microsoft. For much of the last two decades, there was even more worry about Microsoft as a monopoly than there is about Google today. In the early 2000s, most industry experts expected a major competition between Microsoft and Nokia over who would own the dominant smartphone operating system. Google's move to create Android was actually a response to its fear of Microsoft's dominance in mobile.
Today Microsoft is still the dominant platform in PC operating systems. However, it turned out that the kingdom it built was much smaller than everyone thought it would be. The dynamism of platform competition accomplished what the US government's antitrust case in the late 1990s could not. Less than a decade later, Microsoft became a bit player in the mobile-phone market. Apple and Google eclipsed its dominance as new technologies evolved and expanded the market in unexpected ways.
More recently, Google has attracted increasing scrutiny from antitrust regulators due to its dominance in Web search, especially in Europe. But in just a few years' time, Google's dominance in search may seem much less important than it does today. There are signs that this shift is already happening. Although Google has long dominated digital advertising, it's increasingly competing with platforms like Facebook, Twitter and Pinterest for advertisers' money.
This competitive danger is especially strong on mobile, since the vast majority of Google's revenue comes from desktop search. Google's creation of Android as a mobile operating system was designed primarily as a defensive move to protect its search business, but the company still hasn't figured out a great business model for the mobile Web, where search doesn't monetize as well as it does on the desktop. Many analysts attribute the slowing growth of Google's search-advertising revenue to this shift from desktop to mobile.
Clicks on smartphones just aren't as profitable as those on personal computers. Additionally, new entrants from China who are building on top of open-source Android could threaten Google's dominance of Android in the near future. Meanwhile, Facebook has built an enormous presence on mobile, and Google is in danger of being eclipsed by the next round of dominant platforms. If it isn't able to expand its revenue engine to mobile - where the potential advertising market ultimately will be much larger than desktop search is - it too could be relegated to secondary status within a decade.
Google could always try to buy out new competitors, as Facebook did with Instagram and WhatsApp. But repeated, large acquisitions will only incentivize the creation of even more startups that will become future competitors. Google's market position may seem insurmountable today, but this very well could change as the mobile Internet expands and mobile ad revenue eclipses that of the desktop Web.
How should governments react to the rising dominance of platform monopolies? Historical perspective is important here. Enduring monopolies like Standard Oil and AT&T are what gave the term its negative reputation. However, absent government protection, no business is likely to enjoy such a prolonged period of dominance today. As we saw with Microsoft in the 2000s and may potentially see with Google in the next decade, a modern monopoly's dominance in any one industry belies the competitive threat it faces from adjacent competitors and a constant onslaught of new entrants.
Governments should worry about the long term later. As John Maynard Keynes said, "In the long run we're all dead." The right answer usually is to let consumers reap the windfall of social and economic gains that new platforms are creating today. Most of these modern monopolies won't be dominant for long enough for the downside to materialize.© 2016 Bloomberg L.P.