It’s been exciting to watch the reactions to the FTC suing Facebook. I especially thought Ben Thompson’s post today was well written. I do agree with most everything he says, so apologies for quoting him at length:
First off, I would prefer a world where the deal didn’t happen. As I have noted I believe that absent a deal there would be more competition in the advertising space, and more consumer-focused startups.
At the same time, I do have serious rule-of-law reservations about undoing a deal eight years on, particularly given the fact that it appears that the advertising-supported space is doing better than I thought a few years ago: Snapchat in particular is building a great business, LinkedIn is doing much better, and TikTok is obviously on its way. Honestly, I wonder to what extent Twitter’s endemic poor management made the advertising space seem worse than it actually was?
In short, if Facebook isn’t a monopoly, then the acquisitions (and conditional API access) were unsuccessful attempts at being anticompetitive, which is to say that Ebersman was right. But then again, he was obviously wrong: Facebook clearly benefited by acquiring Instagram and WhatsApp, and now I’m back to my caveat about not being a lawyer.
If we take a step back, it’s evident that Facebook is hyper-focused on competition - none of the products they’ve built to squash competition have succeeded (remember Poke and Slingshot? Me Neither). I’m sure they realize that to capture different demographics, they have to expand beyond Facebook.
And I think a world where that acquisition would have been super interesting! It wasn’t the slam dunk that it appears to be today, but what’s fascinating is that I’m sure the founders could have sold for more with more time to acquire Android users.
His additional notes are also fantastic. The second-order effects here are going to be captivating to see.
Some additional notes:
To the extent the lawsuit is successful, the rational response for big tech companies will be to buy potential competitors even earlier, and kill them, so that no one knows what might have been. Oh, and to use encrypted messaging for debate, not email.
Andy Grove famously said “Only the Paranoid Survive”, but the takeaway from many of these emails is that “Only the paranoid get sued for antitrust”; to put it another way, Facebook executives come across as worried about everything, especially Google, which, by the same token, comes across as completely asleep at the wheel (now that is a monopoly indicator if I’ve ever seen one!).
Facebook’s stock was down less than 2% yesterday; that may reflect investor skepticism about the success of the lawsuit, but you could also argue that splitting up the company would actually unlock value: all three products would keep their audiences, but would have to monetize independently, which, given the fact that Facebook ad prices are set by auction, not artificially propped up as you would expect with an alleged monopolist, could absolutely lead to more revenue in aggregate, not less.
Relatedly, it’s not clear that advertisers will benefit from a break-up. The entire reason why Facebook owning both Facebook and Instagram is a problem for other consumer tech companies is because advertisers benefit from a one-stop shop and don’t necessarily want to support multiple platforms.
Facebook is going to argue that Instagram is more secure by virtue of Facebook’s investments; this is a self-serving argument that is true to an extent. What is more notable, though, is how the demand on social networks — be secure, private, and enable competition — are often in conflict: look no further than the fact that the FTC just forced Facebook into a consent decree over the same APIs it is suing over.
It’s truly going to be a fascinating story to watch unfold. The economist in me is enthused, to say the least.