FTC Tries Tries Again With An Antitrust Case Against Facebook

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.

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


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  • identicon
    cowardlyanonomice, 20 Aug 2021 @ 1:12pm

    Mis-trust

    Maybe anti-trust is too strong.

    I'd settle for mistrust.

    reply to this | link to this | view in chronology ]

  • identicon
    Glenn, 20 Aug 2021 @ 1:32pm

    Can you really be a monopoly when no one is forced to use your product or service? (No, BTW.)

    And if it's mostly free?

    What is the FTC saying? ...basically, that users and competitors of Facebook products and services don't have enough control over Facebook. (Like, they're supposed to have any?)

    reply to this | link to this | view in chronology ]

    • icon
      TKnarr (profile), 20 Aug 2021 @ 8:17pm

      Re:

      The thing is, there's forced and then there's forced. You can be forced to do something even if nobody's holding a gun to your head. See "Hobson's choice": you can choose the first horse in line, or you can go without a horse. You aren't forced to choose that particular horse, but if you want a horse you don't have any other choices. You could go to another stable, assuming that a) there's another stable in town and b) it still has any horses left. If I have the biggest stable in town and any other stables are stuck with having only a couple of horses because I'm buying up all but a fraction of the feed, you'll likely find yourself without any other options. And is it really a choice if your only other choice is "do without"?

      That's where Facebook is. When they weren't a monopoly and were facing competition, they went and used their money to buy up enough competitors that a critical mass of users wound up on their platform like it or not. Once that critical mass was reached, anyone looking at choices in social-media platforms was faced with the realization that they really didn't have a choice. The majority of their friends were on Facebook, so their choices were to use Facebook or to not interact with their friends on social media. Hobson's choice.

      reply to this | link to this | view in chronology ]

    • icon
      nasch (profile), 25 Aug 2021 @ 7:44am

      Re:

      Can you really be a monopoly when no one is forced to use your product or service? (No, BTW.)

      It's about having other options, not about force. Nobody was forcing anyone to have a phone line in the 70s, but AT&T was still a monopoly because there was nobody else selling phone service.

      And if it's mostly free?

      Interesting question. I would think a free service could still fall under a monopoly definition.

      What is the FTC saying? ...basically, that users and competitors of Facebook products and services don't have enough control over Facebook.

      I haven't read the whole case, but that isn't what I picked up. Where did they say users and competitors should control Facebook?

      reply to this | link to this | view in chronology ]

  • This comment has been flagged by the community. Click here to show it
    identicon
    Anonymous Coward, 20 Aug 2021 @ 2:33pm

    I still think it's possible that there could be a compelling antitrust argument against Facebook.

    And you’ll probably dismiss those too because they don’t slot into the broken consumer harm standard of antitrust that the Chicago school foisted upon us with the help of the Reagan Administraction, while publishing ignorant pieces from Koch-sponsored think tanks about why the FTC and Lina Khan are bad at their jobs so you don’t have to say it yourself.

    reply to this | link to this | view in chronology ]

    • icon
      Mike Masnick (profile), 20 Aug 2021 @ 3:20pm

      Re:

      You really ought to stop arguing with the strawman Mike in your head, because he isn't me.

      reply to this | link to this | view in chronology ]

      • This comment has been flagged by the community. Click here to show it
        identicon
        Anonymous Coward, 20 Aug 2021 @ 3:34pm

        Re: Re:

        What strawman? In prior articles you’ve written regarding antitrust, as well as in your arguments on Twitter, the consumer harm standard is important to your arguments. And the non-staff posts about antitrust tend to come from Koch-funded think-tanks, whose arguments are oft incoherent or contradictory. The one about how the FTC is “antitrust Gerrymandering” where the author is very much trying to gerrymander antitrust to fit his arguments, and the one about how Lina Khan will somehow ruin the FTC by scaring away academics both come to mind.

        reply to this | link to this | view in chronology ]

        • icon
          bhull242 (profile), 21 Aug 2021 @ 11:39am

          Re: Re: Re:

          In prior articles you’ve written regarding antitrust, as well as in your arguments on Twitter, the consumer harm standard is important to your arguments.

          I’m not fully aware of that being the case, but assuming that’s true, so what? Do you have a problem with that standard? And how is that relevant to this article? And is that really something “that the Chicago school foisted upon us with the help of the Reagan Administra[]tion”, as you claim?

          At any rate, please point to these articles where he makes those arguments.

          And the non-staff posts about antitrust tend to come from Koch-funded think-tanks, whose arguments are oft incoherent or contradictory.

          Please point out the posts or authors and the allegedly Koch-funded think-tanks they allegedly come from, along with evidence connecting to back up these allegations about them.

          The one about how the FTC is “antitrust Gerrymandering” where the author is very much trying to gerrymander antitrust to fit his arguments […]

          I read the article, and I don’t agree. Please explain how he “tr[ies] to gerrymander antitrust to fit his arguments” in that article. Furthermore, you don’t say what think tank the author allegedly comes from or anything, which is what you are supposed to be proving here.

          […] and the one about how Lina Khan will somehow ruin the FTC by scaring away academics both come to mind.

          Once again, I read the article. In that article, the author speaks on a gag order from Lina Khan, which could plausibly scare away academics. Again, please explain exactly what the problem is and, more importantly, your evidence that the author came from a “ Koch-funded think-tank[]”, which is what you were actually arguing.

          reply to this | link to this | view in chronology ]

          • identicon
            Anonymous Coward, 21 Aug 2021 @ 12:39pm

            Re: Re: Re: Re:

            Please point out the posts or authors and the allegedly Koch-funded think-tanks they allegedly come from, along with evidence connecting to back up these allegations about them.

            Well, there's...

            I read the article

            ...since that's the one I was about to link, I have to assume that you're lying about reading it.

            reply to this | link to this | view in chronology ]

        • icon
          nasch (profile), 25 Aug 2021 @ 7:46am

          Re: Re: Re:

          In prior articles you’ve written regarding antitrust, as well as in your arguments on Twitter, the consumer harm standard is important to your arguments.

          Is that not the current standard in US antitrust law?

          reply to this | link to this | view in chronology ]

  • This comment has been flagged by the community. Click here to show it
    icon
    Koby (profile), 20 Aug 2021 @ 3:28pm

    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.

    Just as having a stale pizza spinning around inside of a warming oven will not convert a gas station building into a restaurant, being able to post your resume on Pinterest will not convert it into a job networking site that can overtake Linkedin. It's not arbitrary, it's exactly how users use social media. Facebook is a monopoly for its segment, and has been ever since MySpace got crushed circa 2010.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 20 Aug 2021 @ 4:59pm

    'facebook totally has a monopoly on being facebook.'

    IMHO that sound like it'd actually help competition.

    (On the other hand: techdirt is as close as I come to 'social media' so I am not exactly a good source)

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 20 Aug 2021 @ 6:00pm

    Um, but Whatsapp is... a mobile messaging service, and a big part of the complaint is about Facebook buying Whatsapp.

    Facebook Messenger is also pretty much a messaging service. But whatever.

    Personal social networking is distinct from, and not reasonably interchangeable with, ...

    Did fb force anyone not to do something more similar to fb? and myspace? and diaspora? should fb exile people to another network so they don't have quite as many users?

    reply to this | link to this | view in chronology ]

  • icon
    Darkness Of Course (profile), 21 Aug 2021 @ 2:43pm

    In hind sight

    The FTC has done squat for reigning in large companies buying up little companies, in particular during Republican administrations. Now it decides that FB is a monopoly because that is the only thing they can take them to court on.

    Will they crush the dreams of many startups?
    Look at their plans; innovate, disrupt, and cash out. Meaning get bought out by Facebook, Apple, Google, or the stock market.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 23 Aug 2021 @ 12:58pm

    FTC Tantrum

    The FTC seems more salty about losing and pounding the table because neither facts nor law are on their side. Rather than doing their homework they just scream louder and bang on the table again.

    reply to this | link to this | view in chronology ]


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