Facebook Operating as a Monopoly

RECENT COURT DECISION AGAINST FTC DIDN’T DENY FACEBOOK WAS A MONOPOLY

• Although a judge ruled against the Federal Trade Commission (FTC) in its antitrust case against Facebook, the judge’s ruling did not rule on whether Facebook was a monopoly and it allowed the FTC to retry its argument.
• An analysis of the judge’s ruling by Brookings noted how the case underscored how current antitrust law provides carveouts for “lawful monopolies.” From Brookings, “The many references in the opinion to ‘lawful monopolies’ underscore that current antitrust doctrine, a durable monopoly is not illegal. Indeed, current doctrine also encourages companies to treat the goal of a permanent lawful monopoly as an incentive to develop an attractive new technology or service.”

HOUSE ANTITRUST SUBCOMMITTEE REPORT FOUND FACEBOOK WAS A MONOPOLY

• Beyond the FTC, a 2020 report from the majority staff of the House Judiciary Committee’s Subcommittee on Antitrust found Facebook was a monopoly. According to the subcommittee, “Facebook’s monopoly power is firmly entrenched and unlikely to be eroded by competitive pressure from new entrants or existing firms.”

FACEBOOK HAD A CONTROLLING MARKET SHARE

• The House Antitrust Subcommittee found Facebook “has monopoly power in the market for social networking.” Regulators in the United Kingdom, Germany, and Australia found Facebook dominated the social network market. A UVA professor explained that Facebook’s ownership of some of the largest social networks meant that Facebook’s products did not have to compete with each other by offering a better user experience, better features, fewer ads, or better privacy protections.
• In a presentation, Facebook said it controlled “95% of all social media in the U.S. in terms of monthly minutes of use and found the social media industry was consolidating as it matured, meaning Facebook’s market share was likely to grow further. Facebook reported in 2020 that it had over 3 billion monthly active users.
• A 2020-2021 Statista survey found Facebook-owned three of the four most popular social media apps among online consumers: Facebook, Facebook Messenger, and Instagram. Seventy-three percent of online consumers reported using Facebook regularly, and nearly half of all online consumers reported the same for Facebook Messenger and Instagram.
• Facebook had roughly 100 percent market penetration in nine of the twenty most popular countries in the world, and reached more than 75 percent of internet users in the United States.
• Beyond the social networking market, Facebook also controlled a significant portion of the digital advertising market. Facebook reportedly controlled 22 percent of all digital advertising in the U.S. in 2019.
• Facebook, in response to regulators’ requests, identified Bing, Yelp, and BuzzFeed as competitive substitutes to Facebook, although these companies’ products were profoundly different from Facebook’s offerings.

FACEBOOK WAS MORE CONCERNED WITH COMPETITION BETWEEN ITS OWN SUITE OF PRODUCTS THAN OTHER COMPANIES

• The House Antitrust Subcommittee found Facebook competed more vigorously among its own products than with actual competitors, another indicator of its dominance and the absence of market pressure.
• A Facebook memo warned how Instagram risked taking users from Facebook, and an Instagram employee explained that “The question was how do we position Facebook and Instagram to not compete with each other. It was collusion, but within an internal monopoly. If you own two social media utilities, they should not be allowed to shore each other up. It’s unclear to me why this should not be illegal.”

FACEBOOK WAS A MASSIVE COMPANY WITH HUGE PROFITS

• In June 2021, Facebook’s market capitalization exceeded $1 trillion.
• In 2019, Facebook made over $70 billion in revenue while Facebook and Instagram generated over half of 2019’s display advertising revenues.

FACEBOOK CRUSHED POTENTIAL COMPETITORS

• U.S. antitrust law currently prohibits mergers and acquisitions that substantially undermine competition.
• Facebook, the FTC claimed, had a “buy or bury” strategy against competitors. The House Antitrust Subcommittee found Facebook maintained its monopoly by buying, copying, or killing its competitors.
• Facebook frequently bought companies it saw as threats, and Facebook has bought at least 63 companies since 2004.
• In internal communications, Facebook CEO Mark Zuckerberg wrote that Facebook “can likely always just buy any competitive startups” and described buying companies as a “land grab” to “shore up our position.”
• A Facebook executive wrote “I would love to be far more aggressive and nimble in copying competitors. . . Let’s ‘copy’ (aka super-set) Pinterest!”
• One example of Facebook’s “buy or bury” strategy was its 2012 purchase of Instagram. Zuckerberg discussed Facebook buying Instagram with its cofounder, Kevin Systrom. The House Antitrust Subcommittee described Zuckerberg as issuing a “veiled threat” to Systrom’s company when he wrote, “At some point soon, you’ll need to figure out how you actually want to work with us. This can be an acquisition, through a close relationship with Open Graph, through an arms length relationship using our traditional APIs, or perhaps not at all ....”
  • Facebook was developing its own Instagram “clone” while it was in talks to buy Instagram, underscoring how Facebook, in the view of the House Antitrust Subcommittee, maintained its monopoly by either buying, copying, or killing its competitors. Zuckerberg wrote to Systrom: “Of course, at the same time we’re developing our own photos strategy, so how we engage now will determine how much we’re partners vs. competitors down the line -- and I’d like to make sure we decide that thoughtfully as well.”
  • Systrom expressed concern Facebook would target Instagram for destruction if he refused the deal. Systrom wrote Zuckerberg he “wouldn’t feel nearly as strongly [about the acquisition] if independently you weren’t building a mobile photos app that makes people choose which engine to use.”

• Facebook executives considered the messaging service WhatsApp as a competitive threat to Facebook Messenger. According to the House Antitrust Subcommittee, “Documents show that when Facebook acquired WhatsApp, Mr. Zuckerberg and other senior executives, as well as data scientists, viewed WhatsApp as a potential threat to Facebook Messenger, as well as an opportunity to further entrench Facebook’s dominance.” In 2014, Facebook bought WhatsApp for $19 billion.
  • In 2016, the European Commission fined Facebook for providing “incorrect or misleading” information about its WhatsApp acquisition.

• There are repeated examples of Facebook copying competitors’ products after they refused to sell to Facebook.
  • After Snapchat refused to sell to Facebook in 2013, Instagram introduced its “Instagram Stories” feature that was “nearly identical” to Snapchat. By 2018, Instagram Stories had double the number of Snapchat Stories daily users.
  • According to the House Antitrust Subcommittee, after Houseparty declined a Facebook acquisition, they “released the product they referred to as ‘the internet’s living room.’ Shortly thereafter, Facebook announced that its Messenger app would become a ‘virtual living room.’ Houseparty’s active user base fell by half between 2017 and 2018.”

• Facebook had a treasure trove of user data to cement its advantage over competitors. From 2013 through 2018, Facebook used its VPN app Onavo to track users across other apps, including how time users spent on other apps.
• Facebook used its policies selectively to punish competitors. Zuckerberg wrote to subordinates that “we shouldn’t help our competitors whenever possible. I think the right solution here is to just be a lot stricter about enforcing our policies and identifying companies as competitors.”
  • A former Facebook employee testified that Facebook gave more severe punishments to companies that Facebook saw as a competitor.
  • Facebook cut off the video app Vine from Facebook’s APIs, effectively degrading consumers’ experience and reducing Vine’s competitive threat.
  • Facebook cut off API access to a firm that was a competitor to Facebook Messenger.
  • The CEO of a marketing firm, Stackla, testified before Congress that being cut off from Facebook’s APIs nearly “destroyed” the company, resulting in employee layoffs and lost revenue.

FACEBOOK CO-FOUNDER SAID FACEBOOK WAS A MONOPOLY

• In 2019, Facebook cofounder Chris Hughes penned an op-ed in the New York Times” It’s Time to Break Up Facebook.” Hughes wrote, “Mark alone can decide how to configure Facebook’s algorithms to determine what people see in their News Feeds, what privacy settings they can use and even which messages get delivered. He sets the rules for how to distinguish violent and incendiary speech from the merely offensive, and he can choose to shut down a competitor by acquiring, blocking or copying it. […] We are a nation with a tradition of reining in monopolies, no matter how well intentioned the leaders of these companies may be. Mark’s power is unprecedented and un-American. It is time to break up Facebook.”