FTC Tries Tries Again With An Antitrust Case Against Facebook

Legal Issues

from the but-the-evidence-of-a-monopoly? dept

As you’ll recall, back in December, the FTC filed an antitrust case against Facebook, arguing that Facebook abused a dominant market position to acquire Instagram and WhatsApp for anticompetitive reasons, and that it puts in place anti-competitive polices that harm other companies that it is unable to acquire. At the end of June, the court dismissed the case, saying that the FTC never actually showed any evidence that Facebook is a monopoly — which is a key part of any antitrust case. However, the judge gave the FTC a chance to amend. Yesterday (the deadline to file the amended complaint), the FTC took another shot at it and filed its amended complaint.

The new complaint is longer (and actually mentions TikTok, which the original didn’t!). But is it any stronger? Well, at least the complaint has a more coherent narrative to it, after the original really phoned it in. The complaint tells the story of how Facebook effectively missed the smartphone revolution, and that threatened to enable competitors to gain a stronger foothold in social media with a mobile-first approach. The thing that strikes me, however, is how the “evidence” here actually seems to argue against antitrust violations — as it shows just how fragile Facebook’s position was not that long ago, and how easily someone else might have overtaken Facebook. The fact that Facebook was aware of these competitive threats isn’t an admission of antitrust behavior, but rather just the fact that the senior executive suite at Facebook has read Clay Christensen and understands the nature of the Innovator’s Dilemma and how disruptive innovation works.

That said, there is more evidence in this complaint that Facebook deliberately sought to undermine competition at a variety of different points. And if the FTC can convince the court that (1) the market definition it has is correct, and (2) that Facebook has monopolistic power in that market, perhaps it can move the case forward. But, again, the complaint focuses heavily on the Instagram and WhatsApp acquisitions, both of which happened many years ago — at a time when Facebook was nowhere near as big or powerful as it is today. And, importantly, there aren’t really examples of them doing the same thing recently. Indeed, we keep seeing new entrants showing up in the social media market — including Snap, TikTok, and Clubhouse. Those all undermine the argument that Facebook can stop competitors.

But, honestly, parts of the complaint seem to contradict itself. For example, it says that Facebook was a monopoly since 2011 (which it needs to say to cover the Instagram acquisition period):

Facebook holds monopoly power in the provision of personal social networking in the United States and has held such power continuously since at least 2011. Multiple sources of evidence demonstrate that Facebook has monopoly power with respect to U.S. personal social networking services. First, Facebook has maintained a dominant share of the relevant market for U.S. personal social networking from 2011 until the present day. Second, direct evidence indicates that Facebook has monopoly power with respect to U.S. personal social networking services. Further, Facebook?s monopoly power is durable due to significant entry barriers, including direct network effects and high switching costs.

But, in the very same complaint, it says:

By late 2011, Mr. Zuckerberg and other executives realized that Facebook Blue offered a relatively poor experience for mobile users, and that this made Facebook?s monopoly position more vulnerable than it had ever been. In addition, Facebook struggled to translate its social advertising model onto mobile devices. The transition to mobile required Facebook to transform the manner in which its advertisements were displayed: as Mr. Zuckerberg described it, [REDACTED]

Given these mounting consecutive failures, Facebook justifiably feared that its personal social networking monopoly, and its enormous advertising profits, would be threatened by a mobile-first competitor emerging and gaining traction by connecting users in innovative ways and exploiting mobile phones? photo or messaging capabilities.

So… it’s a monopoly, but that monopoly is so fragile that a bunch of new mobile apps from tiny startups threatened to undermine the entire thing? That… doesn’t sound like a dominant position, let alone a “monopoly” one.

The market definition section is equally… strange. It insists that “mobile messaging services” are distinct, and not considered to be in the same market as Facebook and its “personal social networking.” Um, but Whatsapp is… a mobile messaging service, and a big part of the complaint is about Facebook buying Whatsapp. So, it’s hard to see how that makes much sense.

Also, the attempts to distinguish Facebook from other companies — like Twitter, LinkedIn, Reddit, Pinterest, and more only seem to serve to highlight… just how much competition Facebook really has:

Personal social networking is distinct from, and not reasonably interchangeable with, specialized social networking services that are designed for, and are utilized by users primarily for, sharing a narrow and highly specialized category of content with a narrow and highly specialized set of users for a narrow and distinct set of purposes. As a result, users employ these services primarily to maintain or communicate with a distinct or narrow set of connections?like engaging in professional networking?and not to connect with friends and family and share the experiences of their personal daily lives. Examples include networks that focus on professional (e.g., LinkedIn) or interest-based (e.g., Strava) connections. Other examples of services that users view as appropriate for limited sharing with a narrow set of connections include some online dating services and Nextdoor, a service which focuses on facilitating sharing only among users that reside in close physical proximity to one another.

Personal social networking is distinct from, and not reasonably interchangeable with, online services that focus on the broadcast or discovery of content based on users? interests rather than their personal connections. Prominent examples are Twitter, Reddit, and Pinterest. These services do not focus on connecting friends and family: Twitter focuses on enabling users to stay informed about topics that interest them, while Reddit facilitates conversations centered around topics of interest to the participants. As a result, users employ these services primarily to stay informed about and discuss events relevant to their interests (e.g., Twitter), or engage in conversations with communities of mostly anonymous people who share a particular interest (e.g., Reddit), rather than to connect with friends, family, and other personal connections. Therefore, such services are not reasonable substitutes for personal social networking services. In a similar vein, Pinterest allows users to browse content by conducting searches based on their interests, and allows connections based on such interests, but does not focus on connecting users with friends and family and therefore is not an adequate substitute for personal social networking services that do so.

The attempt (in this complaint and absent from the last one) to deal with TikTok seems particularly… weak.

TikTok is a prominent example of a content broadcasting and consumption service that is not an acceptable substitute for personal social networking services. TikTok users primarily view, create, and share video content to an audience that the poster does not personally know, rather than connect and personally engage with friends and family. The purpose for which users employ TikTok, and the predominant form of interaction on the platform, is not driven by users? desire to interact with networks of friends and family.

I mean, this just feels totally arbitrary. They’re not establishing the actual competitive market here. They’re basically defining the market as “exactly what Facebook does, and only if someone else does all Facebook does.” But that’s not how competition works. Competition often looks like just one feature of an existing provider, and then leverages that to grow bigger and to expand. And the FTC complaint just doesn’t deal with that at all. Indeed, if you look at the way Facebook has been responding to TikTok, the idea that it’s not competitive is simply laughable. I can’t imagine that Facebook execs are breathing easy about TikTok’s success now that the FTC insists that it’s a totally different market.

I still think it’s possible that there could be a compelling antitrust argument against Facebook. But this one still feels phoned in. It feels like it’s taken a popular narrative, and just assumed it’s obvious if they put enough words around it, but without actually showing that it’s true.

Filed Under: antitrust, competition, ftc, market definition, social media
Companies: facebook