AIM’s demise illustrates the fluidity of the tech market

After two decades of services, AOL Instant Messenger, otherwise known as AIM, will shut down on Dec. 15, 2017. This marks the end of an era for many of us who came of age during the late ‘90s and early 2000s.

It should remind regulators and the American public of the fleeting nature of market power and the competitive dynamics of the American tech sector, and serve as a cautionary tale to those now calling for trust-busting or utility-style regulation of tech firms today. 

In a pattern dating back to the Microsoft antitrust suit and the AOL-Time Warner merger, regulators, academics, and the public have regularly rotated the day’s leading American tech giants through the short-list of “tech monopolies.” In many ways, the list is so long that is has become a parody. Amazon, AOL, Apple, AT&T, Comcast, Cox, Facebook, Google, Microsoft, Time Warner Cable, and Verizon have all taken their turn as the monopolist in need of regulation because of some grave threat to free speech, politics, culture, innovation, and competition.

{mosads}Our colleagues Brent Skorup and Adam Thierer have outlined this pattern in what they call “the misguided war on vertical integration in the information economy.” And there is perhaps no better example than the Federal Communications Commission’s response to AIM in the early 2000s.

When the FCC approved the AOL-Time Warner merger in 2001, it required that AIM be made interoperable with competing instant messaging platforms. The FCC went so far as to require this interoperability as a precondition for the company to introduce video conferencing or other advanced features. Without interoperability, the FCC predicted that AOL-Time Warner would leverage its position to suppress competition and shore up its dominant market share in the IM space.

The FCC’s prediction was well off the mark. AOL Time Warner never made AIM interoperable, yet saw AIM’s market share decline while the company reported huge losses as early as 2003. Now, AIM is dead.

Such dire predictions are not unique to the FCC. In fact, Columbia law professor Tim Wu (of “net neutrality” fame) argued that major internet service providers (ISPs) were positioned to abuse their power. According to Wu, heavy regulation was needed to prevent ISPs from discriminating against traffic coming from competitors. The world he predicted was one in which the internet was offered in the same way cable companies offer different channel packages to their subscribers. Responding to these fears, the FCC ultimately enacted “net neutrality” rules by reclassifying broadband access services under its Title II utility regulations in 2015.

Yet, it should be noted that only a handful of isolated cases have been documented in which ISPs deliberately blocked or throttled web services. Net neutrality advocates, however, insist that rampant anticompetitive practices by major ISPs and the return of “walled gardens” of yesteryear like AOL are imminent if the FCC does not cling to its 2015 Open Internet Order.

Since the 2016 elections, these types of predictions have gotten worse. Politicians and the commentariat of both the left and right have now zeroed in on the major digital content platforms and online retailers. “Forget AT&T,” proclaimed the headline of a New York Times opinion piece from December 2016, “Google and Facebook are the real monopolies.” Jonathan Taplin, the author of the piece and of the forthcoming book “Move Fast and Break Things,” argues that Google, Facebook, Apple, and Amazon have achieved dominant positions that now merit government intervention. 

“The rise of these digital giants,” Taplin writes, “is directly connected to the fall of the creative industries of our country.” What decline is he referring to? Not a decline in the quantity or quality of content available to Americans, but rather in the revenues that flow to content creators and distributors.

Taplin’s frustration is understandable. He’s a music and film producer who benefitted greatly from pre-internet content distribution and has had his personal finances disrupted by the growth of these new digital platforms. But the call for antitrust regulation is misplaced. Antitrust should not concern itself with whether legacy industries are disrupted by new entrants, but instead should be concerned with one simple question: How does this affect consumers?

As the kerfuffle over AIM some 17 years ago demonstrates, predictions of imminent tech monopolies rarely come to pass. Indeed, revamping antitrust regulations to the liking of Wu, Taplin, and others to focus on preserving static market conditions with a sufficient number of competitors would inevitably destroy the dynamism that has prevailed for decades and driven incredible advances in the American information economy.

AIM is a case in point: the FCC’s 2001 AOL Time Warner merger order required the company to devote considerable engineering efforts to open the market for instant messaging service as it existed at the time, and limited the company’s ability to develop video conferencing and other consumer welfare-enhancing features that we enjoy today.

AIM’s demise should be a cause for reflection. Its height marked not only a coming of age for our generation but for the internet. Users can look back fondly at their time with AIM. Regulators, meanwhile, would serve everyone well if they too looked back. We can only hope they internalize their past failures to predict the future before turning their ire toward the next tech monopolist du jour.

Christopher Koopman is the director of the Mercatus Center at George Mason University’s Technology Policy Program. Michael Kotrous is a program associate with Mercatus.