The Federal Trade Commission strikes back against Facebook


Regulatory targets often complain that their opponents are fighting the last war. Indeed, that was Facebook’s first response when it was sued last week by the Federal Trade Commission and 48 state attorneys-general for anti-competitive practices.

The states and federal government are seeking to force the company to spin off WhatsApp and Instagram, acquisitions made years ago that have helped it dominate the social media landscape. Facebook called the complaints “revisionist history” and unfair.

In reality, these lawsuits are fair, legal and much needed. Despite Facebook’s claim that its purchases had received the “all clear”, experts such as Columbia law professor Tim Wu argue that the FTC did not “approve” the deals, it opted not to try to block them at the time.

But the Facebook case is really about something far bigger and more important: it shows how regulators are shifting their world view. They are starting to see the market as Silicon Valley titans do, rather than the way technocratic DC economists and lawyers traditionally have.

Back in 2012, when Facebook was acquiring the photo-sharing app Instagram, and WhatsApp was becoming the category leader in mobile messaging, there was very little public understanding about Big Tech’s business models.

Most consumers thought they were getting something for nothing: “free” internet searches and a new, costless way to connect with friends. In fact, their actions, preferences and communications were being surveilled and sold to the highest bidder, even as behavioural technologists deployed clever algorithmic nudges to push users towards the content and products that the platforms wanted to promote.

In retrospect it is clear that the regulators looking at this landscape made crucial errors. They considered various products and services to be separate markets: social networking on desktops, messaging on mobile phones, photo-sharing and so on. They focused on the number of individual users that each company or app reached, rather than the combined data that a newly merged entity could leverage across every service and device.

Regulators also did not reckon with the way behaviourally-targeted advertising could influence our choices. And perhaps most importantly, public watchdogs did not fully understand the nature of digital barter transactions. In them, users pay for services in a new currency — personal data — without knowing exactly what the company is getting or doing with it next.

But, as the poet Maya Angelou put it, “when you know better, do better”. Regulators have begun to put aside their linear focus on “efficient markets” defined by low consumer prices. Instead they have started to understand digital markets as winner-takes-all landscapes. Large tech companies happily co exist with smaller innovators, often taking advantage of legal loopholes to copy their ideas. Every now and then, a particularly successful competitor such as WhatsApp or Instagram gets big and popular enough that the network effect kicks in, allowing the company to grow and add new features and users faster than the existing giants.

At that point, the state attorneys-general allege, Facebook turned to acquisition to neutralise the competitive threat (I think of it as acting like Star Trek’s voracious alien collective mind, The Borg). The lawsuit quotes chief executive Mark Zuckerberg saying that even if Instagram and WhatsApp were not inclined to sell, “they’d have to consider it” if he offered “a high enough price”. Facebook would make an offer that no investor could refuse. The company allegedly bought another start-up, Onavo, that monitored mobile apps to help it target rising competitors.

Such acquisitions do not jack up consumer prices, but they do reduce consumer choice and innovation. That’s a huge problem. Plenty of technologists, economists and lawyers argue that the last big digital monopoly case, alleging that Microsoft was abusing its dominance in PC operating systems, helped create the necessary space for start-ups including Google to grow. As FTC commissioner Rohit Chopra tweeted this week: “Facebook executives were frightened that new innovators were winning away user attention. It was being outpaced by competitors’ rapid development of innovative ways to connect.”

The FTC and state complaints make clear that they are trying to expand the definition of an illegal monopoly. They have moved beyond the neoliberal view that consumer wellbeing is all about falling prices and allege that users’ “time, attention, and personal data” are being combined and sold in unfair ways.

This shift is overdue. Content currently given away for free has huge value. (Remember how Facebook’s stock price fell when Kim Kardashian boycotted the site for a day to protest misinformation.) Third-party developers shouldn’t be forced to work only with Facebook to access its platform.

The Facebook complaints are much broader than the antitrust case that was filed against Google in October. They mark the first real post-neoliberal competition case. If the watchdogs win, they could seek enforced interoperability of apps and data and some sort of auditing or oversight body to make sure there is no discrimination. The next steps might be formal regulatory supervision and tough limits on use of data. It seems that regulators, too, can move fast and break things.

rana.foroohar@ft.com

Follow Rana Foroohar with myFT and on Twitter





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