Why the US government wants Facebook to sell off Instagram and WhatsApp

On Wednesday, the United States Federal Trade Commission and 48 U.S. state attorneys general filed major lawsuits against Facebook claiming the social media giant is a monopoly whose anti-competitive practices hurt Americans.

The two trials, which follow over a year of surveys, are the biggest antitrust challenge Facebook has faced. They both essentially call for the disbandment of Facebook by forcing it to cancel its acquisitions of Instagram and WhatsApp, which together have billion users.

The lawsuits allege that such action may be necessary because Facebook has crushed its competitors and achieved dominance by buying potential rivals, and this limits the choices of U.S. consumers and reduces their access to privacy protections.

“They have stifled innovation and degraded the privacy of millions of Americans,” New York Attorney General Letitia James, who led the states trial (which includes 46 states plus Washington, DC and Guam), told reporters Wednesday. “No business should have so much unchecked power over our personal information and social interactions.”

Facebook did not immediately respond to a request for comment. But a blog post the company published on Wednesday called the lawsuits a “revisionist story.” The company stressed that its acquisitions of WhatsApp and Instagram had been approved by the FTC years ago, and said allowing a “takeover” would set a worrying precedent that “no sale will ever be definitive ”.

Their cases relate in particular to the acquisitions of Instagram by Facebook, a photo-sharing app bought for $ 1 billion in 2012, and the global messaging app. WhatsApp, which he bought for $ 19 billion in 2014. The lawsuits claim that Facebook depended on these acquisitions to become the monopoly it is today, giving it the power to crush competitors it does not acquire.

“For nearly a decade, Facebook has had monopoly power in the personal social media market in the United States,” the AG case argues. “Facebook illegally maintains this monopoly power by deploying a buy or bury strategy that thwarts competition and harms both users and advertisers.”

the The case of the FTC comes to the same conclusion. “Not content with attracting and retaining users through substantive competition, Facebook has maintained its monopoly position by buying out companies that present competitive threats and imposing restrictive policies that unjustifiably hamper real rivals or potentials that Facebook isn’t or can’t acquire, ”the suit says.

It’s a convincing argument, Will kovacica former FTC member and professor of law and politics at George Washington University told Recode. “Both are based on the idea that Facebook’s primary source of dominance was the acquisitions of Instagram and WhatsApp in particular, and that these are the main pillars of the company’s current position in the market. And the only way to fix that is to start a new business. “

The lawsuits come at a pivotal time for Big Tech, as the public, regulators and lawmakers on both sides of the aisle examine these companies and their impacts on society and the economy. In October, the House Antitrust Committee concluded a 16-month investigation by issuing a high-profile report that found that Facebook and its fellow tech giants Amazon, Apple and Google had antitrust practices and needed to be better regulated. A still unresolved question is whether the antitrust laws drafted decades ago are up to the task of regulating businesses in the Internet age.

While the findings are similar, Wednesday’s lawsuits are different from the lawmakers’ report, which makes recommendations but can do little to implement those suggestions. However, these lawsuits could force Facebook to take certain actions, such as paying fines or selling WhatsApp and Instagram based on existing laws. Yet, it is too early to say what the impact of these lawsuits will be.

Why the US government says Facebook is bad for Americans

While the cases of the FTC and the attorneys general are not exactly the same, the parties have collaborated and their cases make similar claims about why Facebook is anti-competitive.

Essentially, they find that Facebook is a powerful social media monopoly that collects a massive amount of data on US users that the company uses to sell ads. While the lawsuits focus on the Instagram and WhatsApp acquisitions, the two say Facebook’s anti-competitive behavior is part of a larger pattern.

Much of the evidence in the business cites comments from company executives, including CEO Mark Zuckerberg, as evidence that Facebook is intentionally anti-competitive. For example, the FTC case cites an email Zuckerberg sent to a colleague on the day Facebook announced he was buying Instagram. “I remember your internal post about how Instagram was our threat and not Google+. You were fundamentally right. One thing about startups is that you can often acquire them, ”Zuckerberg quotes.

“What the lawsuit means is that the monopoly power of Facebook and personal social networks was not just the result of innovation or of being the best product or service, but rather that Facebook has violates antitrust laws to ensure that it does not face any significant competition ”, Sally Hubbard, of the Open Markets Institute, told Recode.

The cases also call for Facebook’s treatment of developers. They accuse the company of allowing producers of other software to use Facebook’s data to develop their own apps and connect them to its service, which benefited Facebook as it made more people join and use Facebook more. often. But Facebook would then exclude those apps if it ultimately saw them as a threat to its own business.

“You aren’t allowed to offer every business something that is some sort of critical competitive input,” says Hubbard, “but then stop the process when a business dares to compete with you, which Facebook has done. “

“Users of personal social networking services have suffered and continue to suffer from various harms as a result of Facebook’s illegal behavior, including degraded quality of user experience, less choice in personal social networking, deletion of the innovation and reduced investment in potentially competing services. », Declares the AG trial. He argues that another consequence of all of this has been to undermine Americans’ right to privacy because Facebook has stifled competitors who could have offered better privacy protections. (In 2019, Facebook agreed to pay a record fine of $ 5 billion in a settlement with the FTC over allegations of privacy breaches.)

Any potential Facebook break is still a long way off

So what’s the solution to undo some of the damage that these lawsuits, according to Facebook, are causing to its users and to the market?

Both lawsuits claim the social media giant should essentially go their separate ways. But getting there will be difficult, and if it does, it will take time. Hubbard of the Open Market Institute told Recode that a litigation on Facebook being forced to separate from Instagram and WhatsApp would likely take years; Other experts told Recode that a trial probably won’t even start until next year, or as late as 2022.

Another complication: Facebook continues to intertwine its apps, which would likely make them more difficult to separate if it got to this point. In 2019, Facebook ad he would start to merge the technical infrastructure of direct messaging systems used by WhatsApp, Instagram and Facebook. The company also has higher hopes for WhatsApp, and reported he can link his Facebook and Instagram advertising activities to the messaging platform.

In a tweet Wednesday after the lawsuits were announced, Facebook rejected against their claims, pointing out that the FTC approved the acquisitions of WhatsApp and Instagram years ago.

“We are reviewing the complaints and will have more to say soon,” the company tweeted immediately after the lawsuits were announced. “Years after the FTC cleared our acquisitions, the government now wants an overhaul regardless of the impact this precedent would have on the business community at large or on the people who choose our products every day.

In a blog post subsequently published, the company also argued that it faces competition for ad spend from other platforms like Google and TikTok.

But these aren’t the only defenses Facebook has. “Facebook’s main response is, ‘Look at what we’ve done with the businesses we’ve acquired. Did we just put them on the shelf? Did we put them in the gel? We took relatively small businesses – promising businesses but small businesses – in a fragile and uncertain part of their development, and we turned them into something special, ” Kovacic said.

Still, he said the cases “create a very serious possibility that the company will be restructured.” Now the groundwork will probably be laid for the case to be judged.

It’s too early to say how it will all play out, but experts have told Recode that a hard sell is certainly a possibility.

So while accusations that Facebook is engaging in anti-competitive behavior are not new, the new lawsuits give critics of the company even more work. They also signal that the drive to more strictly regulate Big Techs won’t go away when President-elect Joe Biden takes office in 2021.

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