Facebook was hit by not one but two lawsuits this week. Both the federal government as well as a joint complaint of dozens of states accuse the social media giant of abuse of power. The plaintiffs insist the social media giant must be broken up. They also want Facebook to seek prior approval for future mergers and acquisitions.
The World’s Dominant Online Social Network
Facebook is the world’s dominant online social network since the acquisition of WhatsApp and Instagram in 2012 and 2014 respectively. Mark Zuckerberg’s company bought Instagram for $1 billion in cash and stock. Two years later they acquired WhatsApp for no less than $19.3 billion.
By itself, the Facebook platform is by far the largest online social network in the world with 2.7 billion active users. Number two is YouTube, which is owned by Google’s parent company, Alphabet. They have around 2 billion users. Next in line are WhatsApp, with a nearly equal number of active users. Facebook Messenger, with 1.3 billion users. WeChat, a Chinese app with 1.2 billion users. And, in 6th place, Instagram, with 1.16 billion users.
This means that 4 of the 6 largest online social platforms in the world are owned by Facebook. In an effort to preserve its monopoly, Facebook took the course of “buying possible competitive threats rather than compete”. Instead of focussing on “Facebook-clones” they aimed at differentiated services. Acquiring them secures Facebook’s dominance and prevents others from gaining a competitive advantage.
Federal Trade Commission Alleges Illegal Monopoly
The Federal Trade Commission (FTC) is now seeking a permanent injunction in the United States Districts Court for the district of Columbia. This complaint could result in an effective break-up of Facebook, forcing the company to sell WhatsApp and Instagram. In addition, the state suit asks for a court order that would require Facebook to seek prior approval for future mergers and acquisitions.
Facebook’s strategy of buying competitive threats and adding them to their social networking monopoly has been going on for years. Moreover, the company has continuously hindered and harmed possible competitors. The social media giant has, for example, repeatedly denied developers access to certain information and only made their own APIs available in order for third-party software to be able to communicate with Facebook.
“Personal social networking is central to the lives of millions of Americans,” said Ian Conner, Director of the FTC’s Bureau of Competition in a press release. “Facebook’s actions to entrench and maintain its monopoly deny consumers the benefits of competition. Our aim is to roll back Facebook’s anticompetitive conduct and restore competition so that innovation and free competition can thrive.”
Dozens of States File Joint Antitrust Lawsuit
On the same day as FTC’s lawsuit, 48 attorneys from 46 different states filed a joint antitrust lawsuit. They’ve been working together with the FTC on a 20-month long investigation into Facebook’s business. Only South Dakota, South Carolina, Alabama and Georgia declined to join.
“Almost every state in this nation has joined this bipartisan lawsuit because Facebook’s efforts to dominate the market were as illegal as they were harmful,” said New York Attorney general Letitia James. “[This] suit should send a clear message to Facebook and every other company that any efforts to stifle competition, reduce innovation, or cut privacy protections will be met with the full force of our offices.”
Of course, Facebook knew that an investigation was ongoing. Consequently, they have had years to prepare and, among other things, went through the necessary steps to link the chat apps Messenger, WhatsApp and the chat function of Instagram. Facebook now claims that splitting up these services is impossible. Nonetheless, after the announcement, Facebook took a hit on the stock exchange, with their shares dropping 4%.
Unprecedented Legal Challenge
Facebook has been repeatedly called to testify before Congress. In two capital hearings in 2018 over the Cambridge Analytica scandal, for example, they had to convince sceptical Congress members that they are capable of protecting users’ privacy and can thwart foreign election meddling. At the time, these hearings were Mark Zuckerberg’s toughest political and legal test yet.
However, the parallel lawsuits now represent an unprecedented challenge to one of the world’s most powerful companies. No doubt, this is just the beginning of what will likely be a multi-year process.
At any rate, the social media giant was quick to respond. In a tweet sent out in the early hours of this Thursday morning Facebook said: “We’re reviewing the complaints & will have more to say soon. Years after the FTC cleared our acquisitions, the government now wants a do-over with no regard for the impact that precedent would have on the broader business community or the people who choose our products every day.”