The Federal Trade Commission and 46 states filed a lawsuit against Facebook Wednesday, “accusing the social-media giant of buying and freezing out small startups to choke competition,” WSJ reports.
Why It Matters: It’s the latest challenge to Big Tech’s power, and the FTC is seeking an industry-changing precedent. The end goal here is to “force Facebook to unwind its acquisitions of WhatsApp and Instagram, two of its landmark deals.” Uncoincidentally, the lawsuit arrives just a few weeks after the Justice Department brought an antitrust case against Google.
The Bottom Line: The U.S. government is deeply concerned about the “power of dominant online platforms.”
- Facebook, which has changed dramatically during its “16-year evolution,” currently has 196 million daily active users in the U.S. and Canada, and more than 2.5 billion people globally use its products every day.
But in a true Frankensteinian twist, the FTC helped create the monster it’s trying to take down. Facebook “fired back by noting the FTC had previously approved the Instagram and WhatsApp transactions.”
- Facebook founder and CEO Mark Zuckerberg has described the possibility of a showdown between his company and the government as “existential.” He’s previously expressed confidence Facebook would prevail in court.
- Facebook also “reached a record $5 billion settlement with the FTC last year to resolve a non-antitrust probe involving consumer-privacy violations.”
So What’s Next? This will take years to play out and to impose changes to Facebook’s business, legal proceedings must first prove it violated federal antitrust laws. Complicating matters is that Facebook has already integrated Instagram, WhatsApp and other services it has acquired.
Keep An Eye Out: Facebook is also in antitrust hot water in Europe, where the European Commission has been “conducting a preliminary investigation into the company’s control over and use of user data, including for advertising purposes.” It’s too early to tell if this becomes a formal investigation or charges are dropped.
From this NPR article:
“The investigations could result in Facebook being forced to spin off parts of its business or in far-reaching restrictions on how it operates.
But experts say other outcomes are possible, too. Among them, forcing Facebook to allow people to post simultaneously across platforms not owned by Facebook, letting users view posts from competing social networks within Facebook and permitting friend lists and other data to be exported to rival platforms.”
Decoupling Facebook from Instagram and WhatsApp would be a nightmare and I don’t foresee this being the likely scenario given the previous FTC approvals. Even if it passes, I don’t think that shareholders eat too much of a hit, as they’d still own all assets, even if they’re broken up.
What’s more likely is the government mandates interoperability and pro-competitive practices, which should be fine for $FB since their network effect moat would still be intact.