May 27, 2024


Unlimited Technology

The Case for a Facebook Breakup Still Stands

(Bloomberg Opinion) — In a historic session Wednesday, the CEOs of four of the world’s biggest technology giants appeared before a House subcommittee to answer wide-ranging questions about their anticompetitive practices and allegations they leveraged their powerful platforms to harm competitors.

Each executive had time in the spotlight. Inc.’s Jeff Bezos faced several inquiries over the e-commerce giant’s use of third-party seller data in developing its own competing products, while Apple Inc.’s Tim Cook came under criticism for the smartphone leader’s App Store policies. Google parent Alphabet Inc.’s Sundar Pichai may have received the most attention, facing repeated questioning about the company’s ad platform dominance and search-engine practices.

Then there was Facebook Inc. When it came to questioning the social-media giant’s CEO Mark Zuckerberg, lawmakers zeroed in on the company’s size and prior acquisitions, including Instagram and the messaging platform WhatsApp. In response, the executive defended his company’s scale, implying the U.S. needed a strong Facebook to battle against the growing global competitive threat from Chinese internet companies. He also emphasized that the success of Instagram was by no means assured when it was acquired eight years ago.

Zuckerberg is right about this point. Facebook’s resources definitely were instrumental in Instagram’s rise. But that was then, what about now? The reality is, with the company’s ownership of the top two social media apps, Facebook has now become too dominant in a critical category that’s only growing in importance to the daily lives of consumers. According to Pathmatics, 69% and 37% of all U.S. adults maintain active accounts on Facebook and Instagram, respectively, with Twitter a distant third at 22%. Along with Google, Facebook is the only other company that can provide advertisers with interest-based data targeting at scale — into the billions, based on user activity on its platforms.  To illustrate, if a company wanted to buy effective digital ads directed at soccer moms in a certain geographic area and age group, Facebook is one of the few options available.  

This concentration of power needs to be addressed. A solution? Facebook should spin off Instagram. By creating two separate social media players, the individual companies could become more nimble and innovative and enable a more vibrant competitive marketplace for advertisers and consumers.

A look at the Department of Justice’s website reveals that the principles behind antitrust regulation are centered on promoting fair competition and benefiting consumers through “lower prices, better quality and greater choice.” A breakup would help achieve most of those aims. While Zuckerberg argued today that his company has numerous competitors including iMessage and TikTok, Facebook continues to dominate the social media advertising market today in terms of dollars and user numbers. For example, TikTok’s user base in the U.S. is still estimated to be in tens of millions, much smaller than both of Facebook’s two platforms. Even Zuckerberg and Facebook shareholders might benefit from a breakup, because investors would probably give a higher valuation multiple to a standalone Instagram, owing to its faster growth and more attractive younger demographic.

Of course, Facebook disagrees. But Zuckerberg’s idea that it needs to stay large to compete against China doesn’t hold water. The latest Comscore figures show both Facebook and Instagram have plenty of scale in the U.S., with user bases well above 100 million each. Further, the recent rise of ByteDance Ltd.’s TikTok is itself evidence that size is a less important barometer for success, compared to innovation and feature differentiation. 

Zuckerberg also argues the company’s large scale is required to have the resources to fight misinformation and bad actors on its platforms. But this idea is significantly undercut by Twitter’s better performance in this area, again while being a fraction of Facebook’s size. Simply, the total aggregate amount of spending isn’t the problem. Facebook is falling short in prioritizing and having the moral fortitude to take forceful and aggressive action against disinformation, hate speech and false conspiracy theories. This week alone, a false Covid-19 cure video was able to propagate rapidly on its platform before it was taken down by the site. Facebook still has much to do on the content policies front.  

The company may try to brush off the criticism and focus on its financial success. Yes, Facebook will likely post strong quarterly results Thursday evening on the back of its best-in-class ad targeting and the breadth of its client base. Its more transaction-oriented direct-response advertising is also resonating with e-commerce sellers, who are thriving amid the current surge in online shopping caused by the pandemic. But Facebook’s very success only serves to underscore its market dominance, and scrutiny won’t let up.

Zuckerberg, who has total voting control over Facebook, can sidestep the issue by implementing a breakup plan. If he doesn’t, regulators and Congress should think about forcing his hand. The move will benefit consumers, give large and small businesses more choice and lead to more innovation. At the end of the day, there aren’t many downsides.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tae Kim is a Bloomberg Opinion columnist covering technology. He previously covered technology for Barron’s, following an earlier career as an equity analyst.

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