These days, everyone and their grandma 👵 is on Facebook. It’s arguably the most popular social media platform in the world, but some would say it has gotten too big by playing dirty. That’s why the Federal Trade Commission (FTC) is now trying to break it up.
The FTC and 46 states sued Facebook in December 2020. The lawsuit wants Facebook to:
Stop its anti-competitive actions against smaller software companies. 🤕
Loosen its monopoly on the social media industry by giving up its two biggest acquisitions—Instagram and WhatsApp.
Seek prior approval for all future mergers and acquisitions.
Facebook is hardly the first big tech company to be hit with antitrust lawsuits, and it definitely won’t be the last. Let’s take a look at what antitrust laws are and what this lawsuit could mean for Facebook going forward.
What Is an Antitrust Lawsuit?
Antitrust laws were created by Congress to preserve competition among businesses and prevent any company from dominating an entire industry. The logic is that if companies compete and monopolies are restricted, businesses have a strong incentive to operate efficiently, keeping prices down and quality up.
There are three core antitrust laws. Companies that engage in behavior that break any of these three laws may face an antitrust lawsuit:
The Sherman Antitrust Act – This law prohibits businesses from grouping together or merging to create a monopoly to control pricing in a single market.
The Federal Trade Commission Act – This law was passed in 1914 and created the FTC, the federal agency tasked with enforcing consumer protection and antitrust laws.
The Clayton Antitrust Act – This law was also passed in 1914. It regulates business activities and defines unethical business practices, which include monopolies.
Why Is the FTC Suing Facebook?
The FTC claims Facebook swallowed up smaller startups and competitors in a calculated effort to build a social media monopoly. For example, in November 2020, it acquired Kustomer—a company with a $1 billion valuation specializing in customer service tools and chatbots. There are over a dozen similar acquisitions over the past decade, including the messaging app Beluga in 2011; developer app Snaptu in 2011; facial recognition company Face.com in 2012; and analytics firm Onavo in 2013.
Facebook’s largest acquisitions to date are Instagram in 2012 for $1 billion and WhatsApp in 2014 for $22 billion. Not only did these two purchases significantly increase Facebook’s size; they also consolidated its direct control over a sizeable chunk of the social media landscape (be honest: even if you’re not a Facebook fan, how many hours have you wiled away scrolling on Insta? 🤳).
Facebook has raked in staggering profits because of its unmatched position as the world’s dominant personal social networking service. In 2019 alone, it generated more than $70 billion in revenue and its profits topped $18.5 billion. 🤑
Now, the FTC has essentially decided enough is enough. This lawsuit is seeking to force Facebook to reverse the WhatsApp and Instagram acquisition. It wants these brands to once again become independent companies that compete 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. “Facebook’s actions to entrench and maintain its monopoly deny consumers the benefits of competition. Our aim is to roll back Facebook’s anti-competitive conduct and restore competition so that innovation and free competition can thrive.”
What Happens Next?
This isn’t the first time a tech giant has been hit with an antitrust lawsuit. 👀 Perhaps the most famous such case is the Microsoft antitrust lawsuit in 1998. The Department of Justice (DOJ) claimed Microsoft made it harder for its competitors to succeed in the market by deliberately bundling free software into its operating system.
Microsoft Founder Bill Gates testified before Congress numerous times to defend his company’s actions. Even so, federal courts ultimately ruled that Microsoft violated the Sherman Act and needed to be broken up. But then the tech giant won an appeal in 2001. It was allowed to remain intact, albeit with restrictions on its business practices. ✍️
Google is also facing antitrust lawsuits for its anti-competitive tactics, such as making itself the default search engine on browsers and smartphones. For instance, it pays Apple an estimated $12 billion a year to be the iPhone’s default search engine. It claims users “prefer” to use it over other alternatives.
Antitrust lawsuits that are effectively enforced have quite a few benefits for consumers. They help keep the marketplace competitive by encouraging companies to continuously improve their services and provide more quality to customers. So we, the consumers, get better quality with less payout.
The government’s case against Facebook will likely spend years in federal court, with more years of appeals. It’s currently hard to say if the suit will be successful. Even if Facebook wins, it could still be weakened by the outcome, like Microsoft was twenty years ago. The lawsuit at least shows the DOJ has not ✋ given up its mission of preventing single companies from forming market-choking monopolies.