Antitrust’s June War and Chevrolet: What Google Can Learn From GM

This week, the Department of Justice formalized its interest in Google from an antitrust perspective. This is a prosecution that, if it moves forward, could have global implications. But it is not unprecedented and not unexpected. As such, looking at successful past corporate strategies to avert government intervention could be valuable – particularly if the implementation of such a strategy would be less costly than years of litigation and government meddling.

Let me set the stage for this story. The year is 1962 and six out of every ten motor vehicles sold in the United States are made by General Motors (GM). For passenger cars, the number is even slightly higher. Understandably, GM has antitrust concerns. It is a victim of its own postwar dominance of the auto industry, and now the crosshairs of the Department of Justice are wandering toward Detroit.

Historically, GM was organized into a vertical hierarchy of brands. A young man might buy a Chevrolet or a Pontiac, then move up to an Oldsmobile or a Buick, and eventually have a chance to own a Cadillac. This was meant to track with the progression of mostly-white, mostly-white-collar careers of men leading one-car households in postwar America, and it was a real success. Through GMAC and its control of its dealer network, GM later made sure GM cars were cheap to finance and difficult to trade in toward Ford products (this was achieved by offering artificially high trade-in values for GM products traded toward other GM products).

However, as GM began to worry about antitrust, it decided to take evasive action. In fact, it set about doing something no other large manufacturing company has done: Preparing part of the company to be sacrificed on the Department of Justice’s antitrust altar. This brand was Chevrolet. Throughout the early 1960’s, Chevrolet began to be differentiated from the rest of GM in unusual ways. It had its own high-end sports car (the Corvette), its own one-ton truck platform (the Suburban), and seven factories produced exclusively Chevrolet cars, engines, or parts. Chevrolet began to look like a separate car company – a Russian doll strategy of a company within a company.

The strategy allowed GM to push forward owning the market. If threatened, like a gecko discarding its tail, it would throw off Chevrolet as a sacrifice to the antitrust regulators and continue on its path toward world domination. Or, at least, that was the strategy.

Where General Motors is today is not a result of this strategy. But much can be learned from it.

Google today looks a lot like GM did after World War II. It has used infrastructure the government paid for (the Internet) to build a dominant position. Its strategy focuses on the lifestyle and daily needs of middle America, much as GM’s did in a different era. And the antitrust folks at the Department of Justice cast a menacing eye in the direction of Mountain View about as often as they cast the same eye toward Detroit once upon a time.

But Google doesn’t have factories. It doesn’t have UAW contracts. It doesn’t have a physical logistics reason to locate one business in Kentucky and another one in Indiana. Google should be more mobile, more distributed, and hence more divisible. Yet, Google’s current strategy makes its products increasingly interdependent. Everything at Google depends upon everything else, so a divestment of any one product would be a painful amputation.

So, my advice to Kent Walker, Google’s General Counsel, is to study the Chevrolet years at GM. Study whether a pre-emptive action is the best way to deal with the Department of Justice. And see whether it’s really in the best interests of Google’s shareholders for the products to become infinitely interdependent rather than interesting, valuable, standalone businesses. Because, when the feds come knocking, it’s nice to have a story to tell, better to have a plan, and best to have a strategy.

Now is the time, Mr. Walker.