Chris Mouré has a new paper on big-tech battles. Here are the highlights.

Blair Fix

Political economist Chris Mouré has a new paper out in the *Review of
Capital as Power*. It's called
['Soft-wars'](https://capitalaspower.com/2021/10/moure-soft-wars-a-capital-as-power-analysis-of-googles-differential-power-trajectory/){target="_blank"
rel="noopener"}, and it is a fascinating case study of the behavior of
big tech.

The story starts in 2011, when Microsoft led a \$4.5 billion consortium
purchase of Nortel and Novel. Later than year, Google responded by
buying Motorola for \$12.9 billion. The funny thing is that Google then
proceeded to *sell off* what it had just bought. By 2014, almost nothing
was left of Google-owned Motorola. Nothing except *patents*. And that,
Mouré thinks, was the whole point.

Mouré argues that this acquisition war was ultimately a battle over
intellectual property. Google and Microsoft were competing to control
the mobile market. And the way to do that was not to 'produce' anything.
It was to command property rights.

The timing of the 2011 patent war, Mouré notes, was no coincidence. It
corresponded with the moment when Google's profits caught up to
Microsoft. Figure [1](#fig-google-dif) shows the trend. This is Mouré's
analysis of 'differential profit' --- the profit of Microsoft and Google
measured relative to the average profit of the S&P 500. You can see that
Google entered the 21st century as a bit player. But by the 2010s,
Google was a behemoth whose profits matched those of Microsoft.

[]{#fig-google-dif}

<figure class="wp-block-image size-large">
<img
src="https://i0.wp.com/economicsfromthetopdown.com/wp-content/uploads/2021/10/softwarsfigure3.png?w=723&amp;ssl=1"
decoding="async" data-recalc-dims="1" />
<figcaption>Figure 1: Google catches Microsoft. Chris
Mouré’s analysis of differential profit — profit relative to the S&amp;P
500 average. Source: <a
href="https://capitalaspower.com/2021/10/moure-soft-wars-a-capital-as-power-analysis-of-googles-differential-power-trajectory/"
target="_blank" rel="noopener">Soft-wars</a>.</figcaption>
</figure>

Looking closer at the data, Mouré notices an interesting shift in
behavior that happened after 2010. In the decade prior, Google's profit
was positively correlated with Microsoft's. But after 2010, the
correlation turned negative. In other words, when Google did well,
Microsoft suffered (and vice versa).

[]{#fig-cor-neg}

<figure class="wp-block-image size-large">
<img
src="https://i0.wp.com/economicsfromthetopdown.com/wp-content/uploads/2021/10/softwarsfigure4.png?w=723&amp;ssl=1"
decoding="async" data-recalc-dims="1" />
<figcaption>Figure 2: An antagonistic relation between Google
and Microsoft. This figure shows Chris Mouré’s analysis of
differential profit growth rates for Google and Microsoft. Prior to
2010, the growth rates were positively correlated. But after 2010, the
relation turned negative. Source: <a
href="https://capitalaspower.com/2021/10/moure-soft-wars-a-capital-as-power-analysis-of-googles-differential-power-trajectory/"
target="_blank" rel="noopener">Soft-wars</a>.</figcaption>
</figure>

What's going on here, Mouré argues, is that by 2010, Google and
Microsoft had become locked in a heated battle. By then, both firms
dominated their core businesses. Microsoft was a monopolist in the OS
business. And Google was a monopolist in the online ad business. And so
both companies were expanding into new territory. (In this case, mobile
computing.) Unsurprisingly, that let to mutual conflict. And so Google's
win became Microsoft's loss (and vice versa).

To a large extent, this competition played out in a war for
acquisitions. Google and Microsoft both spent billions buying up
competitors. What's impressive, Mouré notes, is that this buying spree
was highly coordinated. When Google bought big, so did Microsoft. Figure
[3](#fig-aquisition) tells the story.

[]{#fig-aquisition}

<figure class="wp-block-image size-large">
<img
src="https://i0.wp.com/economicsfromthetopdown.com/wp-content/uploads/2021/10/softwarsfigure8.png?w=723&amp;ssl=1"
decoding="async" data-recalc-dims="1" />
<figcaption>Figure 3: A coordinated battle for
aquisitions. This figure shows Chris Mouré’s analysis of
acquisitions spending by Microsoft and Google. Source: <a
href="https://capitalaspower.com/2021/10/moure-soft-wars-a-capital-as-power-analysis-of-googles-differential-power-trajectory/"
target="_blank" rel="noopener">Soft-wars</a>.</figcaption>
</figure>

Fast forward to 2018, which saw Microsoft buy LinkedIn for \$26 billion.
As with the Nortel buyout of 2011, Mouré thinks the timing of the
LinkedIn acquisition was no coincidence. It happened when Facebook
joined the monopoly game.

As Figure [4](#fig-facebook) shows, Facebook started the 2010s as a fly
on the 'Goog-soft' elephant. But by 2018, Facebook's profits had caught
up to both Microsoft and Google. Faced with this new adversary,
Microsoft repeated the same strategy: buy your competitor's main rivals.
And so Microsoft bought LinkedIn.

[]{#fig-facebook}

<figure class="wp-block-image size-large">
<img
src="https://i0.wp.com/economicsfromthetopdown.com/wp-content/uploads/2021/10/softwarsfigure9.png?w=723&amp;ssl=1"
decoding="async" data-recalc-dims="1" />
<figcaption>Figure 4: Facebook enters the monopoly
game. Chris Mouré’s analysis of differential profit — profit
relative to the S&amp;P 500 average. Source: <a
href="https://capitalaspower.com/2021/10/moure-soft-wars-a-capital-as-power-analysis-of-googles-differential-power-trajectory/"
target="_blank" rel="noopener">Soft-wars</a>.</figcaption>
</figure>

Mouré's analysis nicely illustrates a truism in economics: big
corporations behave nothing like economics textbooks say they should.
The textbooks say that profits should stem from productivity. But the
reality is that what big companies care about most is *restriction*. The
battle for profits is a battle over property rights --- the legal right
to restrict.

We all know that big tech is engaged in nefarious activity. The point is
that this the *norm*, not the exception. Econ textbooks say that firms
should play nice. In the real world, the big boys make their own rules.

### Further Reading {#further-reading target="_blank"}

Mouré, Chris. 2021. ['Soft-wars: A Capital-as-Power Analysis of Google's
Differential Power
Trajectory'](https://capitalaspower.com/2021/10/moure-soft-wars-a-capital-as-power-analysis-of-googles-differential-power-trajectory/){target="_blank"
rel="noopener"}. *Review of Capital as Power*, Vol. 2, No. 1,
pp. 71--90.

------------------------------------------------------------------------

#### Support this blog

Economics from the Top Down is where I share my ideas for how to create
a better economics. If you liked this post, consider becoming a patron.
You'll help me continue my research, and continue to share it with
readers like you.

[![patron_button](https://i0.wp.com/economicsfromthetopdown.com/wp-content/uploads/2023/05/supporter_button-1.png?w=220&ssl=1){.aligncenter
decoding="async"
recalc-dims="1"}](https://economicsfromthetopdown.com/membership/){target="_blank"
rel="noopener"}

------------------------------------------------------------------------

#### Stay updated

Sign up to get email updates from this blog.

:::: {.jetpack_subscription_widget}
## {#section .widgettitle}

::: {.wp-block-jetpack-subscriptions__container}
Email Address

Keep me up to date
:::
::::

------------------------------------------------------------------------

[![](https://economicsfromthetopdown.files.wordpress.com/2021/03/by.png?w=150){.aligncenter
decoding="async"
recalc-dims="1"}](http://creativecommons.org/licenses/by/4.0/){rel="license"} 
This work is licensed under a [Creative Commons Attribution 4.0
License](http://creativecommons.org/licenses/by/4.0/){rel="license"}.
You can use/share it anyway you want, provided you attribute it to me
(Blair Fix) and link to [Economics from the Top
Down](https://economicsfromthetopdown.com/).

------------------------------------------------------------------------

Political economist Chris Mouré has a new paper out in the

 Review of Capital as Power

. It’s called ‘Soft-wars’, and it is a fascinating case study of the behavior of big tech. The story starts in 2011, when Microsoft led a $4.5 billion consortium purchase of Nortel and Novel. Later than year, Google responded by buying Motorola for $12.9 billion.

Messaggi di Rogue Scholar

Soft-wars