The FTC is suing Facebook to unwind its acquisitions of Instagram and WhatsApp

Illustration by Alex Castro / The Verge

On Wednesday, New York Attorney General Letitia James announced a massive antitrust lawsuit against Facebook, claiming the social media giant has harmed competition by buying up smaller companies like Instagram and WhatsApp to squash the threat they posed to its business. Forty-seven other state and regional attorneys general are joining the suit.

The lawsuit centers on Facebook’s acquisitions, particularly its $1 billion purchase of Instagram in 2011. In addition to its acquisition strategy, the attorneys general allege that Facebook used the power and reach of its platform to stifle user growth for competing services.

“For nearly a decade, Facebook has used its dominance and monopoly power to crush smaller rivals and snuff out competition,” James said in a press conference today. “Facebook used vast amounts of money to acquire potential rivals before they could threaten the company’s dominance.”

The Federal Trade Commission brought a separate lawsuit against Facebook on similar grounds, announced at the same time as the states’ lawsuit. The FTC case goes further than the state case, explicitly calling on the court to unwind the acquisitions of Instagram and WhatsApp, spinning off both into independent companies.

“Our aim is to roll back Facebook’s anticompetitive conduct and restore competition so that innovation and free competition can thrive,” said Ian Conner, director of the FTC’s Bureau of Competition, in a statement.

The FTC case also echoes the state AGs’ claims about anticompetitive use of platform power, particularly Facebook’s practice of “cutting off API access to blunt perceived competitive threats.” The FTC case cites Facebook’s decision to block Vine’s friend-finding feature after the Twitter acquisition as a particularly flagrant instance of this behavior.

In a newsroom statement, Facebook said both acquisitions had been cleared by regulatory agencies and that overturning them after the fact would set a dangerous precedent. “Years after the FTC cleared our acquisitions, the government now wants a do-over with no regard for the impact that precedent would have on the broader business community or the people who choose our products every day,” the company said.

In emails revealed by the House of Representatives’ antitrust subcommittee hearing this summer, Facebook CEO Mark Zuckerberg characterized his intent to buy Instagram in emails to his David Ebersman, who was then Facebook’s chief financial officer, as a way to neutralize a competitor while at the same time improving Facebook — by incorporating the features its competitor invented before any other upstart has enough time to catch up and pose a similar threat.

“One way of looking at this is that what we’re really buying is time. Even if some new competitors springs up, buying Instagram, Path, Foursquare, etc now will give us a year or more to integrate their dynamics before anyone can get close to their scale again. Within that time, if we incorporate the social mechanics they were using, those new products won’t get much traction since we’ll already have their mechanics deployed at scale,” Zuckerberg explained.

Within the hour, Zuckerberg sent a follow-up reply, writing, “I didn’t mean to imply that we’d be buying them to prevent them from competing with us in any way,” he wrote. Antitrust lawyers saw that as an admission of guilt from Zuckerberg, who appeared to realize that what he wrote in those emails regarding his acquisition strategy constituted anticompetitive behavior.

Another pillar of the states’ antitrust lawsuit is whether Facebook acquiring a company made the product worse off from a consumer benefit standpoint — in particular, with regard to privacy. Facebook has long claimed that its resources and scale are responsible for turning apps like Instagram and WhatsApp into gigantic platforms with billions of users. But investigators targeting the deals for anticompetitive behavior are examining how, for instance, Facebook’s purchase of WhatsApp and its decision to later utilize WhatsApp user data may have harmed consumers and stifled competition from rivals with better privacy practices.

Notably, the creators of both Instagram and WhatsApp have left Facebook — some, like WhatsApp co-founder Brian Acton, vocally disagreeing with the direction Facebook took his product and what the company has done to privacy in general. WhatsApp’s other co-founder, Jan Koum, left shortly after Acton, having reportedly clashed with Facebook leadership over its data-sharing initiative. Instagram co-founders Kevin Systrom and Mike Krieger left the company over years of built-up tensions between the photo-sharing app and its relationship to Facebook’s business.

The actions are already drawing applause from antitrust advocates in Congress. Rep. David Cicilline (D-RI), who led the House Antitrust hearing in July, cheered on the lawsuits in a statement to the press. “Facebook is a monopoly,” he said. “Facebook has broken the law. It must be broken up. I applaud the FTC and state attorneys general who are leading this effort today.”

Rep. Jerrold Nadler (D-NY) echoed the comments, taking particular aim at the Instagram and WhatsApp acquisitions. “Rather than competing with Instagram and WhatsApp, it appears Facebook simply bought these firms to expand its dominance,” Nadler said. “This should never have happened in the first place, and accountability is long overdue.”

The lawsuit marks the second major regulatory effort from the US government to rein in Big Tech, following the Department of Justice’s lawsuit against Google in October for alleged illegal monopolization of the search and online ad markets.

Comments

This is great news. I hope the government doesn’t settle for just a fine, regardless of how big it may appear. Facebook has been a destructive force in SO MANY areas that something must be done to rein them in.

Agree 100%. Facebook needs to be put in check. This is great news.

FB stock price down 1.93% in a broad market selloff today. People know this lawsuit is a joke. It’s gonna be the same kind of theater with Microsoft decades ago.

Whilst I don’t necessarily disagree with the breakup of FB/WA/IG I do wonder how much of the "destructive force" of Facebook gets solved by the break up.

This would absolutely improve competition in social media but would it actually stifle the negative impact of Facebook as a single entity.

Fewer resources and fewer profiles for Facebook is always positive. With less data, Facebook will give less accurate ads, which means their market share will go down. I assume that Instagram would enter the advertisement market again and immediately take up a lot of that market share.

Facebook needs Instagram. It accounts for a growing 30% of their revenue. I don’t see them surviving another decade without them or some massive overhaul of Facebook itself that brings young users to the platform. BTW, I’m not complaining. Let them rot!

Competition in Social networks will incentivize companies to maybe offer a better environment than just competition amongst friends.

Let them rot.

Doubtful. Facebook and Instagram are so different from FB proper that they had little effect on FB’s algorithms or data/advertising practices. Nothing about this takes the FB out of FB.

It sets the stage.
IG and WA acquisitions have FB huge financial and user base power.
Splitting them sets the stage for more competition.

Not wrong—but fundamentally FB is so big is because there are no competitors. This lawsuit goes at the heart of it.

FB was huge before acquiring either Instagram or Whatsapp. Take them away and FB will still have over 2 billion users. I don’t see how this makes them not ‘big’ at all. Even if forced to split it will still be, by a very large margin, the biggest social network on the face of the earth.

The issue isn’t that FB is big. This lawsuit is never about size—it’s about leveraging that to stifle competition. Who knows how today would be like if IG was not bought out 6 years ago?

Instagram and WhatsApp are outright more important platforms, especially outside the US, than Facebook.com.

A fine, no matter how unimaginably big, will do nothing. They must be broken up, nothing less.

While they’re at it, could they force Google not to kill Hangouts, but make it their new standard chat app?

that is all.

I’m here for this

I didn’t realize how bad Facebook was stifling newcomers from building a social media following until TikTok showed us what a real organic content algorithm looks like. Your exposure on Instagram is so controlled that you can easily predict your likes and engagement numbers because it’s always the same — unless you pay Instagram to advertise, of course.

Removing Instagram from FB won’t actually change that — as its algorithm was nothing like Tiktok even before the acquisition.

I’m not sure if some of the people here are just younger and didn’t use these apps much pre-acquisition, but honestly not much was different at the time when FB was ‘just’ a company with 2 billion users.

Instagram’s algorithm was much different before FB acquired them. I believe it was almost a simple chronological order feed. After the acquisition, FB applied a similar algorithm as FB’s News Feed to IG, where it utilizes your interactions and predicts who you want to see and how often. It is subject to the same flaws.

I don’t really want anyone I don’t know in person following me on Instagram, and almost everyone I know has their accounts on private, whereas Tiktok is much more about the interested few ‘putting themselves out there’/passive entertaintment for everyone else, like YouTube. Very different purposes imo, and it makes more sense to compare the youtube )or even twitter) and tiktok algorithms.

That may be your use case, but myself and many others use Instagram to network and build a brand. That’s why they have the Follow system instead of Friendship with public/private accounts.

Outstanding news.

Wow! This is huge. I would love to see Facebook eviscerated, but it does create the dangerous possibility of hugely influential platforms falling under the control of folks even worse than Zuckerberg. Imagine the crap Rupert Murdoch could do with Instagram if he owned it.

If this does happen and Facebook has to let them go, they’ll be massive businesses in their own right. They are so incredibly massive by now that I doubt they’d settle to be bought again by that idiot.

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