Market Competition, and Kids in Garages Are Better Regulators Than the Department of Justice

WSJ Editorial: Remember when Microsoft was going to leverage its dominance of the operating-system market into control of the Internet? By a quirk of fate, at almost the exact moment that Justice filed suit against Microsoft in 1998, a couple of graduate students in Silicon Valley were seeking money for a little company they wanted to start. They called it Google.

Ten years on, Google isn't so little and Microsoft is a distant No. 3 in the search market. Yahoo, the No. 2 search engine, had seen its stock fall some 80% from its dot-com-era highs before Microsoft made its bid. Remember those days? It's funny how the one true Internet giant to emerge from the bubble wasn't even publicly traded when the Nasdaq poked its nose above 5,000 in March 2000. Business fortunes are hard to predict.

And so while Microsoft was being excoriated for including a Web browser with Windows and then -- horrors! -- a media player too, Apple found a killer app in iTunes and Microsoft's fleeting monopoly on a browser that it gave away didn't turn out to be a cash cow after all. It's hard to make it up on volume when the product is free.

Yes, Microsoft still makes lots of money selling Windows and Office. But the plans for world domination have been put on hold. Yahoo might help Microsoft give Google a run for its money. Or maybe -- just maybe -- there are some kids in a garage somewhere as you read this, writing the code that will make Google shareholders look back on its $160 billion market cap in early 2008 and weep.

We're willing to bet that in another 10 years all of us will be using the Internet in ways not yet invented in 2008. Microsoft's bid for Yahoo is, above all, an admission that while it was chasing the browser and media player markets, the world was moving on. That won't stop.