Last week, Google parent Alphabet lost roughly $500 billion in market value in a single day—a sharp reminder that while Washington has spent years challenging Google’s dominance, competition has continued to challenge the business model that has made that dominance possible.
As The Wall Street Journal reported, the sell-off reflected investors’ concerns about Google’s transition to artificial intelligence. In its latest quarter, Google’s search revenue growth fell by nearly a third—from 17% to 12%—while AI threatens the advertising model on which much of the company’s revenue depends.
A key detail was revealed on Google’s earnings call: Chief Business Officer Philipp Schindler acknowledged that searches through Google’s conversational AI Mode generate less advertising revenue, contributing to the slowdown. Google now faces the uncomfortable possibility that more people can use its products without producing the growth investors expect.
This isn’t the first time an antitrust “trial of the century” has collided with a changing market. A generation ago, the story was about Microsoft and the shrinking relevance of the government’s concerns about its 20th-century business practices to the evolving 21st-century digital economy. Another generation earlier, it was the government’s breakup of AT&T amid technological advances and a long-distance market already attracting competitors.
The government invested collective decades of investigation and litigation resources in these cases. Presumably, that means these were among the most damaging monopolies it believed our economy faced. Yet competition was changing the businesses while the lawyers litigated.
One might infer that antitrust needs to move faster. But that misses the more important question: Would competition have delivered the same benefits to consumers without the government’s intervention?
Microsoft illustrates the problem. The 1998 case centered on Windows, Internet Explorer, and Microsoft’s efforts to squelch Netscape. It preceded Mac OS X, the iPhone, Google Chrome, and the ascent of search advertising and cloud computing. It could not have anticipated Microsoft’s disastrous mobile-phone strategy, Google’s transformation of internet economics, or Apple’s redefinition of personal computing.
Windows did not have to lose its desktop dominance for Microsoft’s competitive position to change. Rather, the world changed around it, and Microsoft succeeded or stumbled according to how well it adapted.
AT&T tells a similar story. By the time the Bell System was broken in 1984, competitors had already entered long-distance service. Telecommunications scholar A. Michael Noll found that long-distance rates had been falling before the breakup, with no clear change in that long-term trend afterward. He attributed the decline to better technology, greater productivity, and growing demand rather than the breakup itself.
Economist Robert W. Crandall added a useful comparison: Canada and Europe achieved substantial long-distance price declines without comparable breakups, requiring network access for competing carriers instead. The breakup changed the industry’s ownership, but Crandall’s work suggests this was not necessary in order to achieve the substantial benefits of decreased cost and increased access to telecommunications that followed the break up. And those benefits were already accruing even before wireless networks and internet communications made long-distance calling itself a less meaningful business category.
Google’s problem is more immediate. It faces a version of management scholar Clayton Christensen’s “innovator’s dilemma”: The technology a company must embrace to remain competitive can threaten the business that made it successful.
AI services need not take market share in the conventional internet search market to threaten its value. They can answer questions directly, changing how users encounter—and whether they click—advertisements. Google’s heavy investment in AI, even at the risk of cannibalizing its own advertising revenue, demonstrates how seriously it takes that threat. Its search market share alone tells us little about its competitive security.
Economist David J. Teece describes this process as “dynamic competition”: competition through innovation and new products, rather than simply lower prices for existing ones. Legal scholar Anouk van der Veer makes the related point that firms can compete to develop tomorrow’s products even when their current offerings do not occupy the same market.
Antitrust has an essential role in stopping price fixing, bid rigging, agreements to divide markets, and conduct that unlawfully blocks rivals. A falling stock price neither excuses such misconduct nor proves that consumers have enough competitive choices.
But stopping firms from suppressing competition is different from deciding how an industry should be organized. The latter asks courts to determine what a competitive market should look like while businesses and consumers are still discovering new ways to compete.
Judge Frank Easterbrook identified the danger in “The Limits of Antitrust.” Courts operate with imperfect information, and mistaken decisions against beneficial business practices can persist even as competition erodes monopoly power.
Market shares measure success within existing industries. They cannot, by themselves, measure competition to reinvent those industries.
The danger is not just that remedies arrive too late. It is that they address a market that businesses and consumers are already leaving behind. Google still dominates conventional search but it may not dominate what comes next.
