Gone are those plain old simple days, when we didn’t need an app to make friends, find a job, book a cab and pay our bills. But slowly and steadily, these applications have become an integral part of our lives. And whether we like it or not; our preferences are being tracked. Tech giants like Facebook use algorithms to analyse vast quantity of user data that it collects regarding its users. This allows advertisers to target different campaigns and message to different group of users. Social advertising enables advertisers to target users based on personalized data like personal connections, activities, identity, demographics, interests, and hobbies. Facebook essentially exploits its rich data set about users’ activities and in 2019 it generated $70 billion revenue & $18.5 billion profits by selling advertisements.
Facebook maintains a dominant position in the social networking arena and boasts of having more than 3 billion active users. One could counter-argue by saying that, Instagram and WhatsApp are strong competitors. But as Facebook CEO Mark Zuckerberg felt “it’s better to buy rather to compete”, Instagram was acquired in 2012 for $1 billion. Subsequently, WhatApp was also acquired in 2014 for $19 billion.
In a bid to suppress competition, Facebook also restricts access to its. It grants access to key application programming interfaces (APIs) only on the condition that 3rd party application developers refrain from providing same core functions that Facebook offers and, from connecting with or promoting other social networks.
Considering the above US Federal Trade Commission (FTC) feels that Facebook engages in a course of anticompetitive conduct with the aim of suppressing, neutralizing, and deterring serious competitive threats. And in Dec’20, US Federal Trade Commission (FTC) and 48 states filed antitrust lawsuit against Facebook. This complaint has been filed under Section 2 of the Sherman Act; which prohibits companies from using anti-competitive means to acquire or maintain a monopoly.
Ian Conner, director of FTC’s Bureau of Competition says “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.” Hence, the lawsuits seeks divestures of assets, including Instagram and WhatsApp. But Facebook feels that this split is unfair as FTC was the one who had approved these two acquisition deals in the past. They had allowed these deals to move forward because they did not threaten competition. Now, with no regard for settled law or the consequences to innovation and investment; it wants a do-over. Facebook believes that it helped the acquired apps grow. 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 and now WhatsApp connects more than 1 billion people.
However, there is a change in FTC’s opinion as at the time of acquiring WhatApp, Facebook had promised users & regulators that it would preserve messaging app’s independence and strong privacy protections. But Facebook has reversed its course years later and has sought to integrate users’ data with social networking site’s other services. This controversial move has set the alarm bells ringing considering tech giant’s past privacy mishaps.
It is interesting to note that in 1998, United States Department of Justice (DoJ) threatened to breakup Microsoft for abusing its monopoly power. The charges against Microsoft & Facebook are drastically similar: The use of monopoly power to exclude potential rivals from gaining a foothold in the market.
DoJ accused & found Microsoft guilty of using its considerable muscle in the Operating System (OS) market to effectively destroy Netscape Navigator in the browser market. Microsoft did this by bundling its own browser, Internet Explorer with its Windows OS and “refused to deal” with any computer hardware manufacturers who dealt with the now-defunct Netscape. Microsoft’s almost complete dominance of the OS market at that time meant that no serious hardware manufacturer had the nerve to challenge it.
So, while Facebook can be nudged towards more responsible behaviour, there is growing need for new comprehensive law that will address privacy, moderation concerns and ensure innovation & free competition. In the interim period, a resolution could centre around severe, effective and rapid penalties for breach of rules and constant monitoring by competition authorities. Microsoft’s brush with litigation (accompanied by a credible threat of break-up) in 1998 has kept it out of harm’s way since.
India’s methodical approach to decree limits on fintech competitions from start can also be explored as another possibility. No single player can grab more than 30% of the total payment transactions. And each player must use India’s open payments platform guaranteeing interoperability. Read more about this on our blog titled “WhatsApp Pay: Just another Digital payment medium?”