The trial between Meta and the US Federal Trade Commission (FTC) commenced in Washington, DC on Monday. The FTC is challenging Meta to prevent the spinoff of Instagram and WhatsApp, alleging that the company acquired these startups to stifle competition unlawfully.
Meta, formerly known as Facebook, acquired Instagram, a photo-sharing platform, for $1 billion in 2012. Approximately two years later, the company purchased WhatsApp, a chat application, for about $22 billion.
The FTC, which serves as one of the United States’ antitrust enforcement agencies, seeks to have Judge James Boasberg hold Meta accountable for executing these significant acquisitions in order to maintain a social media monopoly illegally. The commission has urged Boasberg to restore competition by ordering Meta to sell off these valuable assets. A government victory might deter major tech firms from acquiring startups, potentially affecting a crucial source of innovation and investment returns for venture capitalists.
The initial trial is expected to last up to 37 days, potentially concluding by early July. A subsequent trial to determine penalties could occur the following year if necessary, with appeals potentially extending the process by several years. As such, the potential sale of WhatsApp and Instagram is not imminent. This possibility of losing significant assets highlights why Mark Zuckerberg has reportedly sought a last-minute agreement with President Donald Trump and White House officials to avert legal proceedings, although these attempts have not yielded success so far.
The FTC must first demonstrate that Facebook holds a longstanding monopoly in providing personal social networking services in the US, according to its lawsuit. This market allegedly dominated by Facebook includes services like Snapchat and MeWe, but excludes platforms like YouTube and TikTok, which are viewed as more video-focused rather than for connecting with family and friends. From 2012 to 2020, Facebook reportedly captured over 80% of users’ time yearly within this narrowly defined market.
Secondly, the commission needs to prove the acquisitions harmed competition in the social networking sector. Around the time of the Instagram and WhatsApp acquisition discussions, Facebook perceived startup apps as threats to its monopoly, according to the lawsuit. Citing emails between Zuckerberg and other executives, such as a sentiment expressed by Zuckerberg that “it is better to buy than compete,” the FTC contends that the company opted to purchase emerging competitors to allow more time to develop its own app strategy. The lawsuit claims that the company’s executives addressed the existential threat by acquiring new innovators who excelled where Facebook had lagged.
Following the acquisitions of Instagram and WhatsApp, the FTC claims Facebook faced reduced competition and delivered less robust data privacy to users, alongside more flawed and costly services to advertisers. The deals also sent a message to competitors that challenging Facebook’s dominance independently was futile, according to the FTC, further stifling competition in the market.
The commission aims to restore competition, proposing that Meta might need to divest Instagram and WhatsApp. This scenario could be detrimental to Meta, which relies on Instagram for a significant portion of its advertising revenue, expected to be 50% or more in the US by 2025. The FTC also suggests barring Meta from completing similar acquisitions in the future.
Meta’s primary defense is that the FTC is defining the market too narrowly, arguing that social apps such as TikTok and YouTube are indeed competitors to Facebook. Including these platforms in the market analysis would negate Facebook’s portrayal as a monopolist, according to the company.
If this argument does not lead to a swift victory, Meta’s alternative defense is that the FTC has not shown that consumers and advertisers have been adversely affected by Meta’s ownership of Instagram and WhatsApp, which it considers necessary for the FTC’s case. Meta maintains that the success of these apps is partly due to its management. The company’s attorneys recently stated that the FTC must provide evidence that consumers would have had more or better options sooner without the acquisitions, adding that they believe the FTC will not meet this burden of proof.
