Facebook faces antitrust allegations over deals for Instagram and WhatsApp
Facebook is expecting significant new legal challenges, as the US Federal Trade Commission and a coalition of attorney generals from up to 40 states are preparing antitrust suits.
Although the specific charges in both cases remain unclear, the antitrust allegations are expected to center on the tech giant’s acquisition of two big apps: a $1bn deal to buy the photo-sharing app Instagram in 2012, and the $19bn purchase of the global messaging service WhatsApp in 2014. Together, the buys brought the top four social media companies worldwide under Facebook’s control. The purchases would constitute antitrust violations if Facebook believed the companies were viable competitors.
At the time of its acquisition, Instagram had 30 million users, and, even though it was growing rapidly, it wasn’t yet making money. WhatsApp boasted more than 450 million monthly active users when it was acquired. “WhatsApp is on a path to connect 1 billion people,” Zuckerberg said in a statement at the time.
The FTC cleared Facebook for the acquisitions when they occurred, and the company is hoping to leverage those approvals in mounting a defense. Facebook executives have also argued their company has helped the apps grow.
But Facebook has come under greater scrutiny since the deals were done, and the FTC launched a new investigation into the potential antitrust violations in 2019.
The FTC probe will build on findings from a separate inquiry conducted by the US House Judiciary subcommittee, which released millions of documents that appeared to show that Facebook executives, including CEO Mark Zuckerberg, were concerned the apps could become competition, before aggressively pursuing them.
In one 2012 email, made public through the House investigation, Zuckerberg highlighted how Instagram had an edge on mobile, an area where Facebook was falling behind. In another, the CEO said Instagram could hurt Facebook even if it doesn’t become huge.
“The businesses are nascent but the networks are established, the brands are already meaningful and if they grow to a large scale they could be disruptive to us,” Zuckerberg wrote. Instagram’s co-founder also fretted that his company might be targeted for destruction by Zuckerberg if he refused the deal.
The FTC is expected to vote on a possible suit this week. Three of the five-member commission are believed to be in favor of the move, including chair Joseph Simons, who is expected to leave the agency before the new Biden administration is sworn in, Politico reported.
Commissioners also have to decide where to file the suit: in federal court, which would leave the outcome to a judge; or in the FTC, where the commission could ultimately decide.
The suit expected from the bipartisan coalition of states is headed by New York attorney general Letitia James. While details of their complaint are also scant, several states’ top law enforcement offices launched probes into Facebook’s acquisitions last year, adding to the pressure put on the company by federal regulators.
Facebook did not respond to a request for comment.
Facebook’s possible legal challenges come as a growing number of US lawmakers are arguing that companies including Amazon, Google, Facebook and Apple have amassed too much power and should be reined in.
These companies “wield their dominance in ways that erode entrepreneurship, degrade Americans’ privacy online, and undermine the vibrancy of the free and diverse press”, the House judiciary committee concluded in its nearly 500-page report.
“The result is less innovation, fewer choices for consumers, and a weakened democracy.”
President-elect Joe Biden, too, has been critical of the tech companies. “Many technology giants and their executives have not only abused their power, but misled the American people, damaged our democracy and evaded any form of responsibility,” said Biden spokesperson Matt Hill to the New York Times. “That ends with a President Biden.”
In May, Facebook took over Giphy, a hugely popular moving-image app, with plans to integrate it with Instagram. Late last month, the company also announced plans to acquire Kustomer, an e-commerce app.
“This deal is about providing more choices and better products for consumers,” a company spokesman said in a statement to the New York Times. “The key to Facebook’s success has always been innovation, with M&A being just a part of our overall business strategy, and we will continue to demonstrate to regulators that competition in the technology sector is vibrant.”