Remaking Digital Conglomerates by US Federal Trade Commission

Remaking Digital Conglomerates by US Federal Trade Commission

A US Court has approved for the Federal Trade Commission (FTC) to continue its high-voltage push to get Meta (yes, Facebook) to sell Instagram and WhatsApp. As a private citizen, I do not like what FTC is doing and these are my points:

  1. Without Meta’s investments in the then-fledgling Instagram and -WhatsApp, they would not have been where they are today. Meta’s resources made it possible for WhatsApp to scale when it eliminated the $1 subscription fee. Reversing the acquisitions will be evidently unfair to Meta. 
  2. Finding people who can buy WhatsApp may not be very easy since this product has one major challenge: monetizing it directly will be hard even though you can double play it with other products. Even on that, making good money from WhatsApp will kill the best value it offers!
  3. You cannot accuse Facebook of sharing people’s data and at the same time saying it is anti-competitive by not giving access to Vine and some companies.
  4. TikTok is the new king in town; you must look broadly to see where this is going when it comes to user engagements. This fight may not be necessary in years if Meta does not find a solution to TikTok.

As always, I still believe that you can only regulate companies like Meta because breaking them will not solve any long-term issue on competition: winner-take-all through network effect where the best becomes the dominant player because it has a positive feedback loop of more users, more data and better product. 

If you decide to break Facebook apart, one part will grow and dominate others. This is possible because of the positive continuum of network effect where the biggest keeps getting bigger and also better. I explained that in a recent piece in the Harvard Business Review. You can regulate Facebook but another company will come to take over its position because in this sector, it is winner-takes-all. Yes, the best wins.  Why? The scalable advantage improves with lower marginal cost.

So, if U.S. breaks Facebook, one of those pieces can emerge to fill that void. Or another product from say China or India can emerge and become the world’s leader. It is a web business running on the aggregation construct. They are not structured to have 20 banks in Lagos. You expect to have one popular social media in Lagos for a specific sector. That one leader is what matters. If you break, the one that is best will grow (and win) because network effect will make it easier to attract users to it.

This is my take: U.S. will not regulate Facebook or its web companies at the level many are expecting [I expect nothing to change except cosmetics reporting of violations] because it knows that Chinese competitors which are also well-funded will go after Facebook users across the globe. And even if U.S. regulates Facebook by breaking it, the best surviving part will grow to dominate over time because of network effect where the best gets better and bigger. We just have to agree that Facebook is an ICT utilities and I was very happy when my editors in Harvard allowed me to use that against the company. You negotiate with your utilities [ electricity, water] because you have no alternatives. That is where we are with Facebook.

Of course, the playbook of the FTC seems thus:  I do not want digital conglomerates where a holding company like Meta can control many winners in different categories like social connections (Facebook),  photo sharing (Instagram), and messaging (WhatsApp). If that follows, Google Android, Google Search, Gmail, etc will be visited soon. 

That could be a different look into the US anti-competition regulations. Yes, if they go on trial and Facebook opens how much it loses on WhatsApp, we can understand how giving a free product to billions makes it anti-competitive and a monopolistic empire.

But on pure competition ordinance, I do not think WhatsApp is anticompetitive  or monopolistic when the product is largely FREE.

Comment on LinkedIn Feed

Comment 1: The free market doesn’t breed negative monopolies, only government intervention does. If not, IBM would have crushed Apple during the 80s, Nokia would still retain its dominant position of the mobile phone market.

In a free market, the best product wins. It doesn’t matter if you have 100% share of the market. Once there’s a loophole, someone rushes in to fill that position and ends up taking some share off you. If you are not careful, they might end up taking all (ask Kodak).

The only thing governments that wants to foster innovation and competition should do is to remove all restraints they themselves imposes on new entrants. Even if the incumbents play the market once a new entrant surfaces, it should be left to consumers to decide whom they will trust.

Only consumers have the power to bestow monopoly privilege on companies. Anything else is from rent seekers and their bureaucrat facilitators.

Comment #2: Brilliant dissection as always Prof Ndubuisi Ekekwe . However I think the issue may be more than market dynamics. Yes it is ok from a pure play that companies can gain monopoly because they have worked hard to get there. But that raises the question of putting power into the hands of too few a people, whose motive may not be so clear. The larger issue that seems to be keeping governments awake (except of course the Nigerian government) relates to Power, Ethics & Politics. The Cambridge Analytics still comes to mind. How can we determine which humans we can entrust to have incredible technological power over large populations of people? Who holds them accountable and by what mechanism do we ensure that they “will do no evil”?

Why is the flow of capital directed towards acquiring more capital with technological innovation? The top 28 richest people in the world today can eradicate poverty for the entire human race in a single generation. But they chose to build trillion dollar valuation companies that can go the moon and Mars.
There doesn’t seem to be easy answers here, at least I don’t have any….yet. However I do think the global tech companies should devote more resources to addressing some of the existential problems of humanity.

My Response: Great point. But you have not made a point why breaking Meta will address the issues you noted. Facebook was fined for sharing data which brought “Cambridge Analytics” and was also fined for not sharing data with Vines. Since the GDPR was put in place and FB locked its garden, many companies which used to depend on FB had collapsed. With no access to those data systems, their business models became a guesswork. Magically, FB could keep its data alone and make all the money.

Sure, I am not in support of everything FB/Meta does but reversing a sales done years ago is not fair. I do not want to have a world like that because people would be afraid of succeeding in future to avoid antagonizing government!

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One thought on “Remaking Digital Conglomerates by US Federal Trade Commission

  1. Once you grow very big, you will naturally face resistance and attract haters and detractors, because that’s how humans react to these things.

    If Meta sells off Whatsapp, who will purchase it and what’s the business value? To keep Whatsapp afloat is very expensive, so if there’s no clarity on it will generate that level of revenue and be profitable, it will tank.

    There’s no equity in network effect based type of companies or platforms, so nothing like level playing ground for all players, one or two will always be supremely dominant, that’s how network power law works.

    Competition has a different meaning in this terrain, and it’s something politicians are yet to grasp anyway.

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