On December 9th, the FTC announced an antitrust lawsuit against Facebook, aiming to protect the social media marketplace by forcing the company to divest itself of two of its companies, Instagram and WhatsApp. This is the wrong approach to protect users, and the wrong approach to protect the marketplace.
The Federal Trade Commission’s job is to protect American consumers and markets from abuse of monopoly power. Its job is NOT to break up monopolies and trusts, and it never was. Even the famous “trust busting” Roosevelt recognized the benefits of the monopolies of his time, like Standard Oil and U.S. Steel, in producing goods cheaply and efficiently. If history is any guide, breaking up Facebook won’t benefit American customers and businesses, and may very well hurt them. The most reliable dismantler of monopolies is not government edict, but rather technological innovation.
The US federal government has a less-than-stellar history of regulating technology markets. The most famous antitrust tech lawsuit in recent history was U.S. vs. Microsoft. This suit was fought over Internet Explorer , the much-maligned browser that has been a long standing joke within the tech community.
In 2001, the U.S. Department of Justice (DOJ) took issue with Microsoft including Internet Explorer bundled with the Windows operating system. The DOJ believed this constituted unfair business practices, and it accused Microsoft of abusing its monopoly power in the operating system marketplace to gain an unfair advantage over the browser marketplace. Microsoft, in turn, argued that the browser was an integral part of the operating system, and that customers were hardly hurt by a feature that was included for free.
Despite losing the lawsuit, Microsoft was on the right side of history. Today, the web browser is an essential app, and browsers come bundled free with all modern operating systems. The lawsuit did nothing to end Microsoft’s dominance over web browser user share, rather, years of poor leadership and a lack of innovation caused Microsoft to miss out on the Internet revolution as nimbler startups such as Google rapidly overtook Microsoft. The deepest irony is that the DOJ fought Microsoft to protect a “market” that doesn’t even exist today, at least not the commercial sense: all major web browsers are now available for free, just like Internet Explorer was.
Today, government bureaucrats and politicians on both sides of the aisle have proven themselves to have poor memories. They’re suing Facebook for buying-out Instagram and WhatsApp, actions that it considers to be harmful to the consumers of the social media marketplace. Just like 20 years ago however, the U.S. government has failed to understand the “market” it’s ostensibly trying to protect. All three of these apps are offered for free to the public. Social media companies like Facebook make money by selling targeted ads to businesses. In reality, without the deep pockets of Facebook’s ad revenue, apps like WhatsApp may not exist, because WhatsApp, just like Internet Explorer, does not make any money. If Facebook were forced to divest WhatsApp into an independent company, then it would arguably make for a worse user experience for current WhatsApp users, who may either start seeing ads on WhatsApp or have to pay to continue using the app.
While it’s difficult to predict the results of this lawsuit, it’s pretty clear that in the short term, forcing Facebook to divest itself of WhatsApp and Instagram will hurt users of these platforms more than it will help. In the long term, we can also be sure that whatever decisions are arrived upon will be rendered quaint by the relentless march of technological innovation.
Andrew Chang-Gu is a Freedom in Tech Alliance Contributor and a Strategic Security Consultant at Mandiant, a FireEye company. The views and opinions expressed herein are his own and do not reflect those of FireEye, Inc. or any previous employer.