The feds wish to break up Fb. Good luck with that.
Facebook critics have cheered as the Biden government focused the company on practices that federal regulators say invade people’s privacy, unfairly crush rivals, and generally maintain their stranglehold in the social media world. The recently expanded lawsuitopenly characterizes co-founder Mark Zuckerberg as an old-school monopoly, and raises the hopes of critics and rivals alike that the government may even push for his idea to be smashed to pieces.
Don’t bet on it. Antitrust experts and Wall Street analysts say the US faces great opportunities in the battle with Facebook and predict that the world’s largest social media company is very unlikely to break up. Investors seem to agree. Facebook shares are up 4% since the government tightened their arguments last week.
“[T]There is very little chance FB will have to be resolved as we expect the FTC to lose the case, “Chase White, an analyst at Height Securities, wrote in a recent report.
An important factor that gives Facebook the advantage: Decades of conservative court decisions have raised the bar for proving monopoly behavior. During this time, the usual procedural hurdles remain. The FTC’s case will only continue if it survives Facebook’s motion to be dismissed – a process lawyers expect to extend no earlier than early next year.
“I think Facebook will rightly fight this case by all means because it would create a very unhelpful precedent and risk the breakup of WhatsApp and Instagram, which Facebook would like to avoid,” said attorney Zarema Jaramillo, a partner at Lowenstein Sandler, who advises companies on antitrust issues.
Define the market
The FTC’s argument that Facebook is a monopoly depends on how the social networking market is defined, and then proves that the company’s dominance hurts competition.
“These network markets are pretty new – they’re not like steel and coal,” Eleanor Fox, New York University professor of law who specializes in antitrust and competition law, told CBS MoneyWatch.
Even if the antitrust authorities can prove that Facebook has a large share in this market, it would still have to prove that it has “market power” – in other words, that “the alternatives” [to Facebook] are not very good and not very strong, “said Fox.
The FTC defines a “personal social network” as a place where users “make personal connections in a common social space”. This distinguishes it from other social networks where people can connect with like-minded strangers (Twitter, Reddit), professional networks (LinkedIn) or people who live in their physical neighborhood (Nextdoor).
In that market, Facebook’s closest competitor is Snapchat – another app primarily designed to connect with real friends, but which has a fraction of the users and revenue from Facebook.
For its part, Facebook claims that it has an abundance of competitors pointing to players like YouTube, TikTok, Spotify, and Strava.
“The relevant market and market power argument is the big one,” said Jaramillo. “The burden is on Facebook to really dispel these allegations. … you have to define the market more broadly than the FTC. ”
Proof of damage will be the other hurdle, she noted. “If [the FTC is] can determine that this is the relevant market, which is as narrowly defined as in your complaint, and Facebook has market power, the question arises as to how Facebook abused this market power? ”
Facebook’s negative impact on competition is clearly evident in the company’s pattern of absorbing smaller businesses that threaten its core product – social networks. Facebook’s purchase of Instagram in 2012 as the photo-sharing app threatened to become the dominant social networking tool on mobile devices is an example of this strategy, according to the FTC’s lawsuit.
Critics say Facebook not only buys competitors, but also prevents smaller developers – whose products often replicate Facebook’s features – from using the company’s application programming interface or API. The FTC’s complaint lists two examples: the short video app called Vine and Circle, a social networking app – both were cut off from using the Facebook “Find Friends on Facebook” function.
By and large, of course, using such methods to defeat the competition is legal under US law. No wonder, then, that the judge who originally dismissed the FTC’s case (and forced the agency to resubmit it) found that Facebook was under no obligation to treat Vine fairly. This underscores the government’s steep rise in convincing the court that Facebook’s restrictions on minor developments are affecting competition.
The FTC’s objection to Facebook’s purchase of Instagram faces another obstacle. According to most analysts, Instagram has grown much faster on Facebook than it did on its own.
“Much of Instagram’s success would not have been possible if it hadn’t been bought out by Facebook,” noted Mandeep Singh, a senior technology analyst at Bloomberg Intelligence.
Height Securities’ White agreed, saying that “we just don’t see a court allying itself with entirely hypothetical reasoning about Instagram’s potential outside of FB.” He thought the FTC’s revised complaint was “likely enough to proceed but not enough to win”.
What about advertisers?
The government might have an easier time showing Facebook’s dominance in advertising, where the company generates almost all of its revenue. The power of Facebook effectively means companies are paying more to advertise on the platform than if there were viable competitors, according to the FTC.
Facebook has argued that the ad market, like the world of social media, is “relentlessly competitive”. What is even more certain is that the company’s reach and the precision of its ad targeting have made the site the only game in town for many emerging online businesses, industry experts said.
“If you are currently a small business, the main way you get customers is by running your ads on Facebook,” said Singh of Bloomberg Intelligence.
With many small businesses going online and new businesses emerging since last summer, the cost of advertising on Facebook has increased between 40% and 80%, according to Gupta Media, which tracks prices for online ads.
Breaking up is difficult
Although experts are skeptical of a violent breakup of Facebook, many anticipate stricter restrictions on the company. For example, a judge could prevent Facebook from acquiring additional social media platforms or require users to take their data with them elsewhere. The court could also require Facebook to install firewalls between Instagram, WhatsApp and Messenger and its main social networking service.
Today, Facebook leverages information about user activity across all three major platforms. “That’s what makes ad targeting so good,” said Singh. “If … Facebook is not allowed to share data, this could definitely affect its ability to target advertising.”
Meanwhile, the litigation has only compounded the urge to pass new antitrust laws among activists, academics, and lawmakers as existing laws may be ineffective.
“There’s an existential question out there as to whether the big platforms fit into the monopoly power model,” said NYU’s Fox. “This is a new kind of power that may not be measured the old way.”