The Day – Fb breakup would demolish Zuckerberg’s social media empire
The Federal Trade Commission took an important step towards a possible liquidation of Facebook by officially filing an antitrust lawsuit against the tech giant, accusing it of abusing its monopoly powers on social networks to stifle competition.
The FTC and a coalition of states also sued the company over Facebook’s acquisition of the photo-sharing app Instagram for $ 715 million in 2012 and the $ 22 billion deal for the WhatsApp messaging service two years later . The deals, which bypassed regulators when they were proposed, were intended to “suppress” competition threats, the Commission wrote in its complaint last week. Now the FTC wants Facebook to sell the two companies – an idea that poses an existential threat to the empire built by Mark Zuckerberg, the chief executive officer.
With much of the company’s revenue growth already coming from Instagram and WhatsApp being central to Facebook’s digital commerce bet, losing the two platforms could wipe out much of Facebook’s long-term value.
“Breakups are scary for investors because they could in some ways disrupt business models,” said Dan Ives, an analyst at Wedbush Securities, who named Instagram one of the top three corporate acquisitions in the past 15 years. Still, Ives thinks the chance of an actual split is “slim” without legislative changes by Congress, which he believes are unlikely. “It’s a loud headline, but it doesn’t change the situation for Facebook in the short term.”
Regardless of the outlook, any sign that the FTC is nearing a split should continue to weigh on Facebook stock.
Facebook acquired these promising competing platforms precisely because the most important social network was expected to fade one day, and it wanted to be the company that decides which apps people turn to next. A split would undo most of Zuckerberg’s hedging for the future of Facebook, just as his immense investments in Instagram and WhatsApp are starting to pay off. Facebook argues that these investments made Instagram and WhatsApp what they are today.
“Our acquisitions of Instagram and WhatsApp have dramatically improved these services and helped them reach a lot more people,” Zuckerberg wrote in a post to employees on Wednesday. “We’re going hard and fair. I’m proud of that.”
So a forced breakup would affect Facebook’s prospects.
– E-commerce: Facebook no longer has enough slots to advertise on its flagship social network. Too many ads in the feed affect the user experience. So it relies heavily on the sales potential of shopping. This year, the company pioneered ways to shop directly from pictures and videos on Instagram, bringing companies around the world together to use WhatsApp to communicate with customers. Facebook has worked to reconcile these commercial endeavors with its main social network by requiring companies to have Facebook Pages to run Instagram ads, for example. The Menlo Park, California-based company also plans to link WhatsApp’s chats to purchases from Instagram. But without these two traits that businesses depend on, Facebook’s path to becoming an e-commerce giant looks much more difficult.
– Revenue growth: Facebook’s user numbers have gradually balanced out in some of its most valuable markets, and the company has been warning for years that its main news feed’s ad space is saturated. That means the company’s recent sales growth has been largely driven by Instagram. According to Bloomberg, the photo and video sharing app had sales of around $ 20 billion in 2019, which would represent about 29% of all Facebook ad sales in the past year. Research firm EMarketer estimates that Instagram revenue will be $ 28.1 billion in 2020, which is about 37% of Facebook’s total ad revenue. That would mean Instagram’s $ 8.1 billion annual revenue growth would account for most of Facebook’s revenue growth, according to EMarketer.
WhatsApp now makes practically no money for Facebook. That is about to change, however, as the company places a big bet on payment, trading, and customer service tools for the messaging app’s 2 billion+ users. Any revenue that WhatsApp brings in will continue to fuel Facebook’s growth.
– International Markets: Both WhatsApp and Instagram are vital to Facebook’s international strategy, giving the company a strong position in fast-growing markets such as India and Brazil. In some countries, WhatsApp or Instagram far outperform the parent company. In India, for example, WhatsApp has over 100 million more users than Facebook, according to EMarketer. This is important for Facebook, which sees India as the next big internet frontier, and the company has raised concerns that Chinese competitors might get there first. In Japan, Instagram has over 70% more users than Facebook’s main platform.
While Facebook remains the largest social network in the world, Instagram and WhatsApp give the company a much larger exposure than a standalone service. Losing these apps would drastically reduce Facebook’s overall user base and, with it, revenue.
– Demographics: Everyone uses Facebook. All but teenagers. Pew Research found that 51% of 13-17 year olds said they used Facebook in 2018, up from 71% a few years earlier. Instagram has now been used by 72% of teenagers in the United States.
Facebook is no longer as popular as it used to be with the younger generation of internet users, partly because there is much more competition for Gen Z consumers. Instagram was the company’s secret weapon used to fend off Snapchat and could ultimately prove to be a bulwark against viral video upstart TikTok. Without Instagram, Facebook would have to develop its own products that appeal to the youngest and most desirable group of internet users – something it hasn’t been able to lately. There’s no sign that this would suddenly be possible without Instagram under one roof.
– Reputation: As Facebook weathered data breach scandals, misinformation, and electoral interference, it became more common for people to say they were leaving Facebook and planning Instagram and WhatsApp as alternatives for connecting with friends and family online. While they’re all part of the same company, Facebook understands that its chicks have a more positive public reputation. The company recently rolled over the Facebook branding to other members of its platform family in an effort to reclaim some of those positive feelings. Without Instagram, now known as “Instagram by Facebook”, for example, Facebook cannot take advantage of the more favorable attitude that the app has retained among its users.
– WhatsApp + Instagram: Facebook wouldn’t be the only company involved in a fight if divestments were required at some point. WhatsApp hasn’t focused on revenue or profit for the past six years, but has focused on user growth, reliability, and encryption. That freedom was granted thanks to Facebook’s robust ad business that was paying the bills. WhatsApp is building a business, but there is no guarantee that it will pay off, and without Facebook’s deep pockets, WhatsApp will face greater pressures to make money.
Instagram relies on Facebook for many things, including technology that powers the advertising business and content moderation. An Instagram spinoff could mean building a whole new ad platform and blocking access to important targeting data Instagram gets from users’ Facebook profiles, potentially making ads in the app less relevant.
The photo sharing app also relies heavily on Facebook’s automated content monitoring tools to combat hate speech, terrorist content, and other types of inappropriate user submission – a system that the company is developing and maintaining as part of security and protection Billions has invested press. An independent Instagram might have to create these tools itself.