When tech firms get too big - will Facebook & Google follow the cycle of IBM & Microsoft?

The technology industry is still relatively young, and certainly has a lot more growth to come. But it’s old enough now for us to see the repeating trends that make regulatory and legal restrictions of the big internet companies inevitable.

Google is already under scrutiny by the European Commission, and now Facebook is the focus of political and societal anger for its role in spreading fake news, influencing elections, and its relationship with the controversial data science firm Cambridge Analytica.

We’ve had three major eras in modern technology since the 1960s, and for the first two, the dominant company of the time has eventually been reined back by political pressure.

First, there was IBM in the mainframe age. As long ago as 1969, the US Department of Justice launched an antitrust case against IBM, alleging abuse of a monopoly in the supply of general purpose computers. The legal action lasted for 13 years before being dropped in 1982 – but the move changed IBM as a company and changed the IT industry too.

As part of its attempts to rebut the accusations, IBM for the first time unbundled software and services sales from its mainframe hardware, enabling greater competition and creating a whole new sector in the tech industry.

The forced move eventually proved almost calamitous for IBM. Despite being a pioneer of the PC in the 1980s, IBM’s internal paranoia about further antitrust action contributed to Big Blue missing the full impact of the PC revolution – the second major era of modern IT – leading to what was then the biggest loss in US corporate history, of $8bn in 1992.

The company that made hay while IBM’s profits declined was, of course, Microsoft, which became the dominant player in the PC age. Inevitably, this led to a similar turn of fortune, as Microsoft faced a series of antitrust cases in the US and Europe during the late 1990s and into the 2000s.

Distracted by its legal fights and by the need to change its own culture and sales behaviour, Microsoft was late to the game on the web and online search, and completely missed the rise of mobile, apps and social media. In 2007, then-CEO Steve Ballmer famously dismissed Apple’s new smartphone, saying “There’s no chance that the iPhone is going to get any significant market share. No chance.” The iPhone subsequently generated more annual revenue than all of Microsoft.

Now we’re in the internet era, and firms like Google and Facebook dominate. They are introducing new business models, and pioneering not just new technologies but new working practices. Society is only now starting to understand the implications of the vast databases of personal information these companies are gathering.

As someone once wrote, privacy is one of the defining challenges of the internet age. Facebook and Google are finding they have reached the limits of what people consider to be acceptable and ethical, after years of pushing those boundaries ever further.

Many experts predict that the next era of IT will be artificial intelligence (AI). As the influence of today’s early AI use rises, will changing political and legal attitudes to Google and Facebook ultimately stifle their plans to dominate in AI too? The historic example of Microsoft and IBM suggests it might – although if it does, that inevitably means there will be new AI giants emerging to restart the cycle.