FTC Should Declare Victory and Leave

by Norm Singleton

Disappointingly—but not surprisingly—the Federal Trade Commission (FTC) is continuing their antitrust lawsuit against Meta, parent company of Facebook, Instagram, and WhatsApp. The suit was filed during the first Trump Administration then refiled under Biden. It meets the classic definition of bipartisanship, which is when the stupid party and the evil party team up to do something both stupid and evil.

The suit seeks to force Meta to sell Instagram and WhatsApp, even though the Obama-era FTC saw no problem with the acquisitions. The FTC claims Meta bought Instagram and WhatsApp in order to keep them from growing large enough to threaten Facebook’s dominance of the social media market. The problem with this argument is that it does not fit the facts. If Meta bought Instagram and WhatsApp to protect Facebook, then Instagram and WhatsApp’s popularity would have peaked before they were acquired by Meta, and the websites should now be losing users.

When Meta (at the time  called Facebook) purchased Instagram, the app had just 30 million users while Facebook had over a billion. It hardly seems likely that Facebook viewed Instagram as a serious competitor. Instagram currently has 2 billion monthly active users and over 500 million daily users. This makes Instagram the world’s third most popular social site—behind Facebook and YouTube.

Meta’s acquisition of Instagram is not an example of a dominant firm buying out a potential competitor to bury it. Rather, it is an example of a successful business seeing an opportunity to further grow by acquiring newer, smaller firms—thereby accessing their resources. The same scenario is true of WhatsApp. In 2013, the year before Facebook purchased it, WhatsApp lost $138 million and brought in $10.2 million. This hardly suggests Facebook viewed them as a threat. So why did Facebook spend $21.8 billion to acquire WhatsApp?

The reason is that WhatsApp had over 450 million users at the time of the merger. Today, WhatsApp has almost 3 billion users. WhatsApp is a free service that allows users to send text messages using cellular data or WiFi. WhatsApp is popular in markets where cell phone service is very expensive or nonexistent. Integrating Facebook and Instagram with WhatsApp has increased Meta’s popularity in those areas. As with Instagram, Facebook’s purchase of WhatsApp was done to increase the company’s market share by working with innovators in the field.

Meta does not behave like a monopoly. Monopolies have the power to charge prices above competitive levels and offer low-quality products. Meta offers all its products for free. As for downgrading the quality—Meta spends billions each year on research and development. This spending is done to improve existing services and develop new products. Meta continuously updates its products in order to compete with other social media sites. Over the past couple of years, young people have left Facebook and Instagram for TikTok. This is because they find TikTok’s short-form videos more appealing than other social media offerings. In response to the popularity of the short-form video format, Instagram is promoting its own short-form reels.

Firms that don’t believe they have to spend the time and money to develop new products and adjust their existing products to better compete with new competitors will have a hard time staying at the top. History is full of examples of once dominant businesses that went bankrupt because they refused to adapt to changing consumer tastes with new technologies. One recent example is Borders books, which could have strangled Amazon in its crib had they realized the potential of online commerce in the 90’s and aggressively established an online presence. Similarly, Blockbuster video could have stopped Netflix had they realized that people would rather rent movies on the internet than drive to a physical store.

Acquiring new smaller firms and and using its resources to grow them into larger successful businesses is a key component of Meta’s strategy to remain the leading social media company. Since many investors support small tech startups in hopes of getting a large payout once the company is sold to Meta or another big tech firm, stopping this process will make social media less innovative. The social media market does not need to be fixed or corrected by any government agency. The FTC should follow the advice of Senator George Aiken regarding Vietnam—“declare victory and get out.”