Facebook’s acquisitions of Instagram and WhatsApp are antitrust targets, but its metaverse mergers may be the victims
Facebook parent Meta Platforms Inc. is in a prodigious antitrust fight with the Federal Trade Commission, but that may be the least of its problems in 2022.Meta’s
stock has tumbled 8% since early September, highlighting weeks of volatility stemming from a whistleblower’s revelations and lackluster quarterly results. Facebook is also coping with a public-relations disaster, shifting demographics, state attorneys-general lawsuits and federal actions beyond the FTC lawsuit that could cut off its most likely path to Mark Zuckerberg’s metaverse ambitions.
On a parallel track, Facebook for months has been preparing an antitrust lawsuit against Apple Inc.
that would claim the iPhone maker abused its influence in the smartphone market by forcing app makers like Facebook to follow App Store rules that don’t apply to Apple apps, according to a report by The Information. Front and center is the FTC’s dogged pursuit of divesting Instagram and WhatsApp from Meta, an audacious bid that could upend large tech acquisitions over the previous decade. Legal experts doubt that effort will succeed in breaking up Facebook, but the FTC is also likely to stand in the way of fresh acquisitions as much as it can while Meta seeks to buy its way to a fully functioning “metaverse.” The FTC already appears to be trying to slow down Meta’s metaverse-inspired acquisition spree, opening an in-depth antitrust probe of a $400 million bid to buy VR fitness app Supernatural, according to a report by The Information. That was one of a half-dozen acquisitions by Meta this year, according to Pitchbook, and at least its fifth VR acquisition in the past three years. President Joe Biden’s non-binding executive order in September empowered the FTC and Justice Department to strenuously assess acquisitions before signing off. That is particularly telling since the FTC’s antitrust lawsuit to break up Meta pivots on its “buy and bury” billion-dollar purchases of rivals Instagram (for $1 billion in 2012) and WhatsApp ($16 billion in 2014) to allegedly eliminate competition. For more: FTC says Facebook ‘illegally bought or buried’ potential rivals But the gap between the FTC’s approval of both deals and a decision by a federal judge earlier this year that questioned the evidence behind the lawsuit all but ensures the case is a long shot, said Herbert Hovenkamp, a law professor at the University of Pennsylvania. “Meta will very likely succeed because the FTC reviewed and approved both before new acquisition guidelines,” Hovenkamp told MarketWatch. “To do so years later would be destabilizing to M&A rules and create a bad environment for investment.” Future resistance to acquisitions, however, will at the very least slow Meta’s ability to snap up competition and further expose it to rivals like TikTok and Snap Inc.
that have managed to challenge Instagram for younger users. “Facebook’s real problem is demographic, because it is becoming an old-folks platform,” Hovenkamp said. At the heart of Facebook’s argument for dismissing the case is its assertion that the company lacks dominant market share in the markets alleged by the FTC — “personal social networking” or “personal social networking services (PSNS).” The company also said the FTC failed to show Facebook used acquisitions of Instagram and WhatsApp to exclude competitors and harm consumers, and that the FTC’s vote to authorize an amended complaint after an initial one was thrown out was invalid. Facebook has requested FTC Chair Lina Khan’s recusal from the case. “The FTC’s fictional market ignores the competitive reality: Facebook competes vigorously with TikTok, iMessage, Twitter
Snapchat, LinkedIn, YouTube and countless others to help people share, connect, communicate or simply be entertained,” a Facebook spokesperson said in a statement. “The FTC cannot credibly claim Facebook has monopoly power because no such power exists.” In circumventing antitrust actions through stricter merger oversight, policymakers run the risk of blunting M&A activity as well as investments in smaller companies, slamming the brakes on innovation and creating an “existential issue” for startups, the Facebook spokesperson said. The FTC’s vow to aggressively review more M&A activity also threatens to trounce an understaffed agency already buried in work, Facebook said, though the Build Back Better bill earmarks $500 million for the FTC to alleviate that pressure. “Facebook has been investing $10 billion a year on AR/VR, and lots of smaller acquisitions, as it transitions to a metaverse player,” Andrew Boone, equity research analyst at JMP Securities, told MarketWatch. “I don’t know how much more Facebook can buy on scale. But I also believe it is hard to crack down on acquisitions of a company of four people.” See also: Facebook becomes Meta in rebranding seen as ‘an attempt at distraction’ The U.K.’s Competition and Markets Authority’s attempt to scotch Meta’s $400 million acquisition of online database and search engine Giphy — the first time an overseas competition agency has ordered a Big Tech company to sell an asset — raises the specter of international regulators blocking tech deals under a “veto-like” system for global competition authorities, said Sam Bowman, director of competition policy at the International Center for Law & Economics. “We disagree with this decision. We are reviewing the decision and considering all options, including appeal,” a Meta spokesperson told MarketWatch in a statement. Meta’s aggressive M&A activity also recently landed it in court. Last month, defunct photo app Phhhoto filed an antitrust lawsuit against Meta on the grounds that the social-media company feigned interest in working with Phhhoto only to allegedly copy its features and hide its name from search results, essentially driving it out of business. The suit illustrates a pattern of Facebook’s behavior to manipulate smaller rivals or alter acquired assets, antitrust attorney Ted Jobes told MarketWatch. He said Facebook radically changed privacy settings on WhatsApp upon its purchase, leading to a steady exodus and criticism from WhatsApp’s founders. “If there are never any consequences for breaking the law, this behavior continues. Facebook has been at it since 2011. It is corporate authoritarianism, and it is hard to be optimistic,” venture capitalist Roger McNamee, author of “Zucked: Waking Up to the Facebook Catastrophe,” told MarketWatch. What it all adds up to are more stifling conditions for Meta, which has pivoted its strategy in great part toward the metaverse, and getting there through scooping up companies or signing deals.