The FTC & 48 AGs (46 states, DC, Guam) start antitrust lawsuit based on Instagram [see 120409] and WhatsApp [see 140219] acquisitions and imposition of anticompetitive conditions on software developers (illegal monopolisation):
- "... initially tried to compete with Instagram on the merits by improving its own offerings, but Facebook ultimately chose to buy Instagram rather than compete with it. Facebook’s acquisition of Instagram for $1 billion in April 2012 allegedly both neutralizes the direct threat posed by Instagram and makes it more difficult for another personal social networking competitor to gain scale."
- "Facebook’s leadership understood—and feared—that a successful mobile messaging app could enter the personal social networking market, either by adding new features or by spinning off a standalone personal social networking app. (...) Facebook chose to buy an emerging threat rather than compete."
- "Allegedly has made key APIs available to third-party applications only on the condition that they refrain from developing competing functionalities, and from connecting with or promoting other social networking services."
Possible remedies: "divestitures of assets, including Instagram and WhatsApp; prohibit Facebook from imposing anticompetitive conditions on software developers; and require Facebook to seek prior notice and approval for future mergers and acquisitions".
Other measures could be contemplated, such as data portability, or an obligation to offer an ad-free Facebook subscription.
Needless to say, Facebook disagrees.
Initial thoughts:
- Take out a competitor? Sure, but is there any evidence, such as: Zuckerberg acknowledging as much on record?
- However, Instagram was quite small when taken over: just 30m users. Last funding round took place at a $500m valuation. The question is: did Facebook's investments make it grow, or was it the 'network effect' that had already taken hold of Instagram?
- Our notes from 120409: Acquires Instagram (photo-sharing app for iOS, Android; raised $57.5m; 30m users, 5m uploads/day; no revenue; 13 FTE), $1bn in cash/shares (raised $50m at $500m valuation from Sequoia, Thrive Capital, Greylock, Benchmark)
- WhatsApp had 450m MAU and 320m DAU when taken over for an (at the time) ridiculous $19b. The deal was approved by the FTC (!), on some privacy conditions (which appears not to be at stake now). At the time, WhatsApp had already become very large, exploiting the 'network effect'.
- Our notes from 140219: Acquires WhatsApp (55 employees o/w 32 engineers; Sequoia Capital 40%; >8k cores), $16bn (4 cash, 12 in shares (183,865,778 shares); cash >= 25%) + $3bn restricted stock (45,966,444 restricted stock units) vesting in 4 yr (for founders and employees: earn-out, retention), total shares 7.9%; to remain independent; 450m mo active users o/w 70% active daily (320m); 19bn messages/day sent, 34bn messages/day received, 600m photos/day uploaded, 200m voice messages/day sent, 100m video messages/day sent; break-up fee payable to WhatsApp in case of regulatory issue: $1bn cash + $1bn in shares; termination possible by both if no closing by 140819 (or 190815 if only regulation is open); to close 2014; CEO Jan Koum to be on Facebook board - Rumor: Google offered $10bn, willing to pay more than $19bn - 9.5m users in NL - Electronic Privacy Information Center & Center for Digital Democracy oppose over privacy - WhatsApp denies data sharing with Facebook - FTC approves, condition: both must uphold privacy policies
- As to the FTC:
- The wording of the FTC (above) is far from neutral.
- It states that "... makes it more difficult for another personal social networking competitor to gain scale" but why would that be so?
- The FTC approved both acquisition.
- No matter how hard Facebook tries to unite the services, in order to preclude a break up, the three services still appear to be almost completely separate from each other. A break-up or forced sale wouldn't necessarily change anything much from a user perspective. Competitors would still have a very hard time creating a competing service.
- Will Facebook, Instagram and WhatsApp as standalone companie increase competition, in other words: will they enter each other's markets? Quite possibly so, for instance: Facebook has the facebook Messenger and Instagram has DM to compete with WhatsApp.
- No matter how you look at it: Facebook allowed Instagram and WhatsApp to grow to their enormous sizes today, so from a consumer standpoint they did quite well.
- Facebook's abusive behaviour relates mainly to privacy and misinformation and has little to do with owning Instagram and WhatsApp (apart from the de facto social media monopoly status giving it confidence that it can get away with this behavior).
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