The end of Zuckerberg’s empire?

The end of Zuckerberg's empire?

Joe Nocera is a leading Bloomberg journalist and business columnist who has worked extensively with such high-profile publications as Esquire, GQ and the New York Times. His next publication is about Facebook and its creator Mark Zuckerberg.

According to the journalist, the founder of today’s most powerful social network has an unprecedented sense of smell, like a hound dog making a stand at the sight of game.

“Mark Zuckerberg has always known everything,” writes Nocera. – Back in 2012, when Instagram had only been around for two years, with 13 employees, and when it was still unclear how the network would make money, he knew: here was where the threat lurked, and a serious one at that.

“Instagram could hurt us,” Zuckerberg warned in an email; and, in an internal discussion about whether to acquire the social network and other startups that could threaten Facebook’s monopoly in any way, he added: “The key is to acquire these companies, leave them running as they are, and over time adapt the social dynamics they develop into our core products.

Kevin Systrom, Instagram’s co-founder, also knew a thing or two. For example, that refusing to sell the company could incur “Mark’s wrath”, causing him to resort to “annihilation mode”, as the Facebook founder put it in a text message to one of Instagram’s first investors.

Yes, the social network could indeed eventually compete with Facebook, but it is possible that, on the other hand, Facebook could use its capabilities to clone Instagram’s technology and drive the startup out of big business. So in April 2012, when Zuckerberg offered $1 billion for the deal, Systrom and Instagram’s board said yes.

The US Federal Trade Commission (FTC) and the UK’s Office of Fair Trading had to approve the deal, and Facebook representatives, when asked about creating a possible major monopoly, countered that, there was serious competition in the photo app market, including an app like Camera Awesome.

As a result, two government agencies were persuaded that since Instagram had no revenues, a merger with Facebook would not result in the latter dominating the market. And it only took these regulators four months for the deal to be approved. But… they didn’t know what Zuckerberg and Systrom knew.

And now the US Federal Trade Commission and prosecutors in 48 US states have filed antitrust lawsuits seeking to overturn the Facebook and Instagram merger, as well as Zuckerberg’s takeover of WhatsApp, another potential competitor that the company acquired in 2014 for $19bn. (At the time, WhatsApp wasn’t generating much revenue either, and it had 55 employees).

The lawsuit itself is unprecedented. The last time the US government considered enforcing antitrust laws so harshly was more than 20 years ago, when the Justice Department sued Microsoft.

“I too have long believed that there is simply no other way to curb Facebook’s enormous monopoly power,” notes Nocera. – And the plaintiffs are right to argue that Facebook uses a “buy or bury strategy” that discourages competition and harms users and advertisers alike.

It’s hard to disagree. Venture capitalists are so wary of Facebook’s ruthless tactics that they simply will not fund start-ups that Zuckerberg might consider competitors, however insignificant they may be. In this way, both innovation and the very spirit of competition are harmed. As a result, according to the plaintiffs, users are simply left with no choice.

What should they do if they are unhappy with Facebook’s privacy policy, or don’t want to see as many ads, or are offended by Facebook’s unwillingness to pay more attention to the vast amount of misinformation? What are the options? Switch to Instagram? Or use WhatsApp? But these are all planets in a universe called Facebook, which can still use users’ data to make tons of money from them.”

Zuckerberg has publicly apologised many times for the missteps that exist on the social network he controls, promising to change it for the better; but words remain words. For example, in 2012, Facebook signed a settlement agreement with the Federal Trade Commission in light of what it called “privacy violations,” and 7 years later it paid a $5 billion fine for the same violations. In other words, Facebook is proving through its activities that the decisions of the government or other instances are not binding on it.

But Nocera points to another important reason why Facebook needs to be demonopolised: It’s the only way to create competition in the social networking business – and create it instantly. Instagram now has more than 1 billion monthly active users. WhatsApp has more than 1.6 billion. What’s more, before they were bought, both companies had their own ways of approaching issues such as privacy and even revenue generation.

For example, WhatsApp CEO and Ukrainian-born Jan Koum left Facebook in 2018; as the Washington Post wrote at the time, the reason for the conflict was Koum’s disagreement with the use of personal data, as Zuckerberg wanted. If Coom insisted on full privacy, Zuckerberg decided it was time to start monetising the data. Generally speaking, for a time, WhatsApp could be seen as an alternative to Facebook in terms of personal data processing; and it was until 2014, when WhatsApp was sold. The same can be said of Instagram. Obviously, if separated, they would be able to compete with Facebook not on price, but on all the other qualitative parameters that social network users care about.

“Facebook has already issued a categorical statement rejecting the lawsuit, rejecting the arguments outlined there; the company believes that deals that were made years ago and approved by regulators cannot be undone. Jennifer Newstead, Facebook’s legal counsel, says the company has invested millions of dollars to make Instagram and WhatsApp successful and profitable, and is prepared to defend itself in court by all available means.

A curious detail: weakening Facebook’s monopoly is one of the few issues on which Republicans and Democrats are in solidarity, which in turn creates fertile ground for a new bill. The law is expected to make it much easier to curb the kind of unfettered power that big tech companies have, starting with Facebook.

“As far as antitrust lawsuits are concerned, dismantling Facebook is not just the right thing to do, it’s probably the only thing to do,” Joe Nocera states.