Should we thank the US government’s 1998 antitrust action against Microsoft for giving us Google? Skepticism is warranted.

One claim from activists eager to break up or heavily regulate America’s tech titans is that doing so would ignite an innovation and productivity boom. As they see it, Big Tech could no longer strangle potential competitors in the cradle nor intimidate entrepreneurs from even trying to challenge them. And as evidence, they point to the US government’s antitrust case against Microsoft — this year marks the 20th anniversary — which, they claim, distracted Bill Gates & Co. so much that they missed the search and mobile revolutions. Simply put: No antitrust case against Microsoft, no GoogleFacebookAmazon and so on and so forth. A totally different internet environment, basically.

Did antitrust action against Microsoft give us Google? Strong claims require strong evidence. REUTERS/Dado Ruvic/Illustration

It’s a strong claim. But who knows, right? It’s a hypothetical. And strong claims should require strong evidence. But activists think they have another data point that supports the distraction theory. It’s with great enthusiasm that these activists and distraction theory proponents are highlighting the following exchange at a tech conference yesterday between Recode’s Kara Swisher and Brad Smith, Microsoft’s president and 25-year veteran of the company.

Swisher: What was the impact on you after you compromised [with the government]. Do you think Microsoft lost a step it needed?

Smith: It’s fascinating because you get a lot of different perspectives on where did we succeed where did we fail and why in the wake of the antitrust issues. My own personal view having been in the middle of it for so long was the single greatest cost was the distraction. Having a Bill Gates, a Steve Ballmer, greater engineering leaders at our company spending so much time figuring out how to prepare for a deposition, how to defend themselves on the witnesses stand, and how to implement this that or the other thing, and you look at the early 2000s, we missed search …

Swisher: A big one.

Smith: Yeah, it was. And it wasn’t the only thing we missed, obviously.

Swisher: Mobile phones. [Audience laughs.]

Smith: Yeah. I do think one has to have the recognition that nobody’s going to catch everything. There’s no company here or anywhere else that is going to see every trend before it emerges. But would we have seen these things if we had been spending more of our time looking for them than looking at these specific issues? It’s a great imponderable. It’s a hypothetical. We’ll never know for sure. But I will say the odds of seeing these things would have been higher.

I mean, maybe? Then again, the history of business is that of seemingly unassailable supercompanies missing The Next Big Thing — no government intervention needed. And that’s certainly the case with tech. From the very beginning even. Thomas Edison dismissed Nikola Tesla in the famous “war of electric currents,” which alternating current advocate Tesla won. Then later, Tesla fell prey to the same impulse, dismissing Guglielmo Marconi’s radio breakthrough — “Marconi possesses more enterprise than knowledge. Let him continue. He is using 17 of my patents.” — as Tesla fruitlessly pursued the wireless transmission of energy.

Disrupting yourself is hard, especially when what’s been working for you has worked for you. As competition researcher Nicolas Petit writes in his paper “Technology Giants, ‘The Moligopoly Hypothesis,’ and Holistic Competition: A Primer”: “Think of the demise of Kodak, a well-known monopolist of the 20th century; of famous web portals such as AOL, Lycos, Altavista, Yahoo! and MySpace; or of the predicaments of once-mighty mobile handset makers such as Motorola, Nokia or RIM (the maker of the Blackberry).”

And what about Microsoft’s big miss? Did widespread corporate distraction, driven by the government’s antitrust case, allow the ascent of Google and other tech firms? I wrote a lengthy blog post earlier this year expressing deep skepticism of the distraction theory as the right explanation vs. Microsoft’s corporate miscues. And I still feel pretty good about it. Let me chunk out one piece, a 2013 Computerworld story about former Microsoft CEO Steve Ballmer’s final analyst meeting, where he admitted Microsoft missed the mobile revolution by being too Windows focused: “If there’s one thing I regret, there was a period in the early 2000s when we were so focused on what we had to do around Windows that we weren’t able to redeploy talent to the new device form factor called the phone.”

And as for Smith’s comments, Swisher seemed skeptical to me. If so, it was with good reason. As Stratechery’s Ben Thompson has previously argued:

[Microsoft’s] business model was about building compatibility walls around its ecosystem and charging for access; Google’s success, from the business model to the technical insight undergirding PageRank, was predicated on tearing them down. There is no way that Microsoft could have out-competed Google for business and cultural reasons, and dominant though Internet Explorer may have been, the paradigm shift of the web and Google’s vastly superior ability to make sense of it all would have overcome any obstacles Windows may have put in its way (defaults matter, but they can be overcome).

Mobile is the same story: there Microsoft’s failure had nothing to do with antitrust, but rather the inability to break out of its licensing business model and the presumption that the PC would always be a user’s most important device. This is the pattern seen with successful companies again and again: they are done in by paradigm shifts, when the same assumptions that made them successful previously doom them going forward.

In short, to believe that Microsoft would have dominated search absent antitrust is to believe that the company was capable of defying everything we know about how businesses rise and fall. Clearly that wasn’t the case in mobile, and I don’t believe it was the case for search.

And here’s how Thompson explains Smith’s comments to Swisher:

… blaming the antitrust authorities has the benefit of absolving Microsoft of responsibility for failure (even if, as I contend, that failure was inevitable). I’m starting to strongly suspect, though, that the narrative that antitrust hurt Microsoft helps the company not just in terms of the history books but also the present day: Microsoft still sees Google as its greatest enemy, less for Bing and more for Office. To that end, I suspect the company would like nothing more than for Google to face the antitrust music; the company may have pulled out of its longstanding campaign against Google in the EU (albeit after helping set in motion the cases that Google is facing today), but what is far more effective is convincing regulators that their actions are justified not simply for punitive reasons but for pro-innovation ones as well. In short, take any Microsoft statements about antitrust with a very large grain of salt.

Also this from Andreessen Horowitz tech analyst Benedict Evans on Twitter:

“If only we hadn’t dropped the ball we’d have done fine” is a great way to avoid mentioning all the structural reasons this was really hard for Microsoft and Nokia to handle. Palm, RIM and Nokia faced very similar issues and are always conveniently dropped from this narrative. Nokia had half the global handset market and had no anti-trust concerns at all yet missed multitouch in a very similar way.

Certainly it would be an equally strong claim that distraction was in no way — zero, zilch, nada — responsible for Microsoft’s woes. Moreover, even if the activist antitrust argument is correct when it comes to Microsoft, it doesn’t automatically follow that government should intervene today. As I wrote in my The Week column last week:

Google, Amazon, Facebook, and Apple — what Wall Street calls GAFA — are four of America’s most valuable and important companies, providing a massive benefit to consumers. Collectively they’re the Tony Stark of corporate America: They pay for everything, design everything, and make everyone look cooler. If the U.S. is going to remain the world’s technological leader against China’s challenge, GAFA will be pivotal. … What’s more, all are desperately fearful of even their core businesses one day being disrupted or displaced by new technologies. That’s one reason they spend so intensely on R&D. They’re all looking for the next big market or transformational technology — just the opposite of fat and happy monopolists who could care less about consumers and potential competitors.