Facebook, the social media giant continues to find itself in hot waters especially facing one of the biggest antitrust lawsuit in history which could get it to sell off its valuable assets such as WhatsApp and photo sharing service Instagram. This is due to the concerns from federal and state authorities about the company’s dominance in the social networking business.
The Federal Trade Commission as well as 48 attorneys general filed separate lawsuits in federal court where they accuse Facebook of illegally stifling its competition by acquiring rivals which ultimately increases its dominance in the industry.
The lawsuit is one of the many in recent times whereby lawmakers and regulators are scrutinizing the power of tech giants. The US Department of Justice’s antitrust division is also said to have been in talk with developers about Oculus, the company that makes Virtual reality headsets (also owned by Facebook).
But this wouldn’t be the first big-time lawsuit against a big tech titan as Google landed itself in the same situation back in October after being accused of using its influence to oust its competitors in the market the company despite numerous law suit eventually got a US$1.7 billion fine last year over “abusive” online advertising practices.
In fact the antitrust scrutiny won’t be limited to the United States alone as regulators from European country like Germany also said they were investigating how Facebook required users of its Oculus VR product to link their accounts with the social network.
Also back in November, the European Commission filed antitrust charges against Amazon over its use of data which are gathered from sellers on its platform.
Regulators are however looking into Facebook’s access to user data and to see if the company uses these information to stifle its competition.
Facebook CEO Mark Zuckerberg told employees on Wednesday the company plans to fight the cases, which could take years to play out.
“Overall, we disagree with the government’s allegations,” Zuckerberg said in an internal post seen by CNET. “The reality is that we compete with many other services in everything we do, and we compete fairly.”
If this look somehow new to you, then let’s take a deep dive into what is leading to the current situation which the social networking giant has found itself.
The reason Facebook is being hit with massive lawsuit
The company was sued due to a number of complaints which includes failing to protect US privacy and not doing just enough to combat the spread of misinformation on the platform. The company had been held accountable over this issues in the past with the company’s CEO Mark Zuckerberg saying the company shouldn’t be held accountable over people’s freedom of speech.
But aside these complaints, the company had also been accused of ill-practices which hurts its competition such as its buying spree which includes the purchase of WhatsApp and Instagram which ultimately spiraled its growth to the world dominance level it is.
Meanwhile the Federal Trade Commission has placed a record U$5 billion fine on Facebook last year over the full-blown Cambridge Analytica scandal which saw the harvesting of a whooping 87 million users’ data from Facebook without the knowledge of the users.
Just after the investigation of the FTC which was trying to dig in to see if Facebook did intend to violate the law or not, the FTC on Wednesday alleges that Facebook engaged in illegal anticompetitive practices to hold onto its monopoly power in the social networking space.
Some of those tactics included purchasing rivals rather than competing with them, according to the lawsuit. Facebook also cut off data access to developers such as Twitter-owned Vine that could be potential competitive threats, the FTC said.
The same goes with the 46 state attorneys general which also challenges the social networking company’s US$1 billion purchase of Instagram in 2012 and US$19 billion purchase of WhatsApp later in 2014.
“Instead of competing on the merits, Facebook used its power to suppress competition so it could take advantage of users and make billions by converting personal data into a cash cow,” New York Attorney General Letitia James said in a statement.
This allegation is said to give consumers lesser choices since its quite difficult to move away from the service to another which had also led to poor privacy protections.
So to put it straight, Facebook is alleged to be involved in competitive malpractices that is making it hard for its competitions to grow as well as affecting consumers at large due to poor privacy protection something which free services such as Facebook and Google have been accused of.
Expected outcome of the lawsuit
Both the federal and state regulators basically want Facebook to sell off its valuable assets which is the duo WhatsApp and Instagram as well as getting a prior notice and approval for future mergers and acquisitions.
“Facebook’s actions to entrench and maintain its monopoly deny consumers the benefits of competition,” Ian Conner, director of the FTC’s Bureau of Competition, said in a statement. “Our aim is to roll back Facebook’s anticompetitive conduct and restore competition so that innovation and free competition can thrive.”
The lawsuit filed by 48 attorneys general said Facebook should be required to notify states if they plan to acquire a company valued at $10 million or more. It also asks the court to stop Facebook’s alleged anticompetitive practices and take other measures, which could include breaking up the company.
Facebook wants to fight back
What would anyone expect from such a rich company with some of the best legal representatives in the world do. The company’s vice president and general counsel Jennifer Newstead has called the allegations “revisionist history” and stated that the FTC had already cleared its acquisitions of both Instagram and WhatsApp and also added that both advertisers and users opt for the service because of the “value” they get from it.
“Antitrust laws exist to protect consumers and promote innovation, not to punish successful businesses,” she said.
Facebook fueled the success of Instagram and WhatsApp, Newstead said, adding that the government’s lawsuit sends a “chilling warning to American business that no sale is ever final.”
Over the summer, Zuckerberg was asked about the acquisition of Instagram during a high-profile House antitrust subcommittee hearing that included the heads of Google, Amazon and Apple. “At the time, almost no one thought of [Instagram] as a general social network, and people didn’t think of them as competing with us in that space,” Zuckerberg said.
Facebook COO Sheryl Sandberg echoed that sentiment in an interview with Tamron Hall that will air on Friday. Instagram had 13 employees, while WhatsApp had 55, she told the journalist.
“We bought them a long time ago, we invested, we grew them, and now they’re really big,” Sandberg said. She reiterated that the acquisitions were cleared by the government and said that unwinding them now could create a “a really big chilling problem for American business.”
Facebook further stated that it had a number of competitors such as short video sharing service TikTok and Twitter as well as others such as Snapchat, Google, Apple and Google.
Is a breakup really possible?
For sure there is nothing impossible nowadays but according to some analysts, a breakup of Facebook is very unlikely. “We expect the courts to side with the FTC regarding limitations on future acquisitions, but we think the likelihood of a forced breakup is low,” said Ali Mogharabi, an analyst for Morningstar, in a post on Thursday.
Facebook’s dominance in social networking, he said, hasn’t led to higher consumer prices because users don’t pay money to use the ad-funded service. He also noted that TikTok, Pinterest and Snapchat have emerged as competitors to Facebook.
Another analyst from Wedbush Securities noted that a breakup seemed unlikely and that they were skeptical about it ever happening.
Analysts for Wedbush Securities also said in a note that a breakup seemed unlikely and that they were skeptical it would happen.
Forcing Facebook to spin off WhatsApp and Instagram is just one of the solutions that state and federal authorities want a federal court to examine. “It’s too early to say definitively what would be necessary and appropriate to restore competition here,” the FTC said in an FAQ about the lawsuit.
How it concern you
You or someone you know use either Facebook, Instagram or WhatsApp if not, the last website you visited probably use some Facebook widget or single-sign on (SSO) service or the like button or share so unless you visit fringe or dark webs, chances are you’ve stumbled upon Facebook’s property even without knowing it.
There’s a good chance that a government action, such as a forced sale of Instagram or WhatsApp, will affect social media users in some way.
But also this can further boos small start ups to challenge established enterprises like Facebook which can also change how the company operate especially with user’s data collection an privacy and security.
No surprise, Facebook plans to challenge the lawsuits in court.
“We look forward to our day in court, when we’re confident the evidence will show that Facebook, Instagram and WhatsApp belong together, competing on the merits with great products,” Newstead said in a blog post.
Authorities have also been looking at other tech companies. In a 449-page report released in October, the House antitrust subcommittee accused Facebook, Google, Amazon and Apple of abusing their monopoly power but even though these companies are so big that breaking them up may be difficult, they could be forced to main positive changes that will allow for more competition as well as enhancing their services to be less of data-hungry beast ready to devour as many data as possible.