Facebook Risks Popular Apps in Antitrust Lawsuits

On Wednesday, social media company Facebook was hit with not one, but two, antitrust lawsuits. The complaints filed by the Federal Trade Commission and a coalition of 48 state attorneys general demand the unwinding of its acquisitions of Instagram (2012, costing $715 million) and WhatsApp (2014, costing $19.6 billion). These acquisitions are said to have both neutralized the direct threat and made it harder for new entrants to gain scale.

The complaints also accuse the social media company of blocking third-party software developer's access to key APIs to stifle any potential competition. States want the firm to seek approval before it makes any future big buys.

"Personal social networking is central to the lives of millions of Americans," said Ian Conner, Director of the FTC’s Bureau of Competition. "Facebook’s actions to entrench and maintain its monopoly deny consumers the benefits of competition. Our aim is to roll back Facebook’s anticompetitive conduct and restore competition so that innovation and free competition can thrive."

Of course, the FTC is the same agency that approved these deals, which is why Facebook has called its latest action "revisionist history" and a "do-over" in a new blog. "The FTC and states stood by for years while Facebook invested billions of dollars and millions of hours to make Instagram and WhatsApp into the apps that users enjoy today. And, notably, two FTC commissioners voted against the action that the FTC has taken today," said Facebook Vice President and General Counsel Jennifer Newstead. This is similar to the arguments made by CEO Mark Zuckerberg at the Congress hearings earlier this year. Undermining him were emails he sent to his CFO David Ebersman years ago obtained by Congress.

However, it is in the FTC's power to reopen inquiries in public interest, and Facebook shares fell 1.93% yesterday on the news. Futures were pointing towards another slump today as investors digest what this means.

An Existential Threat 

Almost half (48.8%) of Facebook's U.S. ad revenue will come from Instagram this year, according to research firm eMarketer and it predicts this figure will rise to as much as 60.3% in 2022. On a global level, Instagram accounted for "more than 25%" of its revenue in 2019, according to Bloomberg's sources.

The Menlo Park, California firm doesn't reveal sales from what it calls its "family of apps," but it's increasingly clear its growth and future depend on Instagram and messaging platform WhatsApp.

Advertisers are said to prefer Instagram to all other social media platforms, especially when budgets are tight. "Marketers are smartly following where the user growth is. Instagram added the greatest number of new users between July and September 2020, posting even stronger growth figures than Facebook," said Hootsuite's global social trends report. More than half of all businesses (61%) are planning to increase their Instagram budget in 2021, according to its survey.

Facebook has also been focused on monetizing WhatsApp by developing the messaging platform into an e-commerce tool in big markets like India. Meanwhile, Facebook Blue has seen slowing user growth.