The company execs must have thought they had won…
After all, tech giant Microsoft (MSFT) had seemingly produced the “perfect” video.
You see, the issue was the dominance of the company’s Internet Explorer. You’ll likely recall that in the 1990s, it was the Internet browser.
And in the late 1990s and early 2000s, Microsoft was fighting for its life in an antitrust suit over it. The existence of the company itself was at stake.
So, Microsoft did what you might expect… It lied.
In fact, the company produced a heavily edited video for the court. The video made it look like installing the competing Netscape browser was easy.
But Microsoft had edited out multiple convoluted steps. And it had lied to the courts.
The prosecution pounced. The government produced its own video showing the truth behind the process.
Microsoft lost the case. And the court ordered that the company break up into smaller pieces. But that wasn’t the end of the story…
If you don’t recall Microsoft being broken up, you would be right.
Microsoft immediately appealed the decision. And it ended up winning the appeal.
Sure, the company had used monopoly power to force the world to use Internet Explorer. But the judge presiding over the case had improperly talked with the media during the trial…
So the appeals court overturned the judge’s order to break up Microsoft. But it didn’t overturn the critical finding. The courts still agreed that company had abused its monopoly power.
Now, take a look at this chart of Microsoft’s stock around that time…
The court initially issued its findings against the company on November 5, 1999 – not far from the peak of the dot-com boom. And the company won its appeal against a breakup on June 28, 2001… while still having been found that it used monopoly power.
At first, it might look like there’s a connection between the ruling and the company’s poor share-price performance over the following years.
But zooming out tells a dramatically different story. Take a look at the next chart…
This chart starts in 1999, right when the court first ruled against Microsoft. And it compares the performance of the company with the tech-heavy Nasdaq Composite Index.
As you can see near the start of the chart, both Microsoft and the Nasdaq had a rough go coming out of the dot-com bubble bursting.
But that hasn’t stopped Microsoft from pulling ahead. As you can see in the above chart, it has massively outperformed the Nasdaq by now.
And it’s still one of the most powerful companies in the world.
That’s true despite the monopoly ruling. And it’s true despite it eventually losing the browser war to Alphabet’s (GOOGL) Google.
Today, Google is in the spotlight. The courts recently ruled that the company is using monopoly power to dominate the search-engine market.
Now, we’re waiting to see what the court’s remedy will be. And officials are discussing a potential breakup.
Even if the final ruling is shocking in the short term… it might not be end of the story. Microsoft ended up winning an appeal over a breakup. And as I said, it’s still a dominant company today – despite being called a monopoly all those years ago.
History tells us that just being labeled a monopoly in tech isn’t so bad after all.
Good investing,
Vic Lederman
