On Wednesday, the Federal Trade Commission, attorneys general for 46 states, the District of Columbia and Guam, accused Facebook of violating antitrust law in court. Federal and state regulators said they had been investigating Facebook for over 18 months and concluded that Facebook had stamped out its competition when it purchased Instagram for $1 billion in 2012 and WhatsApp for $19 billion in 2014. Prosecutors said that the two apps should be broken off from Facebook. “For nearly a decade, Facebook has used its dominance and monopoly power to crush smaller rivals and snuff out competition, all at the expense of everyday users,” said New York Attorney General Letitia James.
The lawsuits are the second salvo in a nascent battle between Big Tech and government regulators. In October, the Department of Justice brought an antitrust lawsuit against Google, the DOJ’s first major antitrust case since it went after Microsoft in 1997. Intelligencer spoke with Pivot’s Scott Galloway to get a sense of what the lawsuits mean for Facebook’s future and how they could change Big Tech forever.
What was your initial reaction to today’s news?
That this is the beginning of the end of Facebook as we know it. That’s the bad news. As powerful as Facebook is, I think that when you have 46 of 50 state attorneys general and the FTC agreeing on antitrust action, that’s pretty powerful. There are some very serious tanks lining up at the border. It reminds me of when the Department of Justice announced its action against Michael Milken, you knew he was probably going to be out-gunned. I think this is the breakup I’ve been predicting for a long time.
When we talked about Google you said the opposite, that the Google case was scary in because Google actually had a chance against the DOJ. What’s different about Facebook?
I would argue that the case against Google is probably more complicated because the remedy is probably more complicated, but also you don’t have 46 state agencies lined up behind the DOJ in its action against Google. That might come, but it’s not there right now. In addition, there’s a certain level of momentum here. First it was Google, who probably said, “Okay we can fight this.” Now it’s Facebook and it sounds to me that the government and states have come to play. This is the government and state attorneys general going after Big Tech now. It’s no longer one point—it’s two points which makes a line. I think now they all have a vested interest in each other’s success, the state AGs want the DOJ to be successful against Google, the DOJ wants the state AGs and the FTC to be successful on Facebook. This is no longer an isolated border skirmish, it’s a war.
What are the ramifications?
There are a lot of ramifications, some surprising and some not surprising. I think Facebook’s stock goes up. I think once there’s recognition that this is going to happen people begin valuing these companies independently and I think they figure out that the whole was actually less than the sum of its parts. If DoorDash is worth $60 billion, Instagram is probably worth $200 billion. WhatsApp is arguably the largest telecom in the world. These firms are outstanding assets.
If you look at the pandemic, I think Facebook has had the weakest performance of the Big Four.
But what was interesting was that Facebook’s price didn’t go down that much today. I think once there’s clarity around this the stock will go up. I think the market does not like the unknown. If Zuckerberg were a true fiduciary, which he has not, he’s never really cared about the commonwealth. If he were really concerned about the shareholders he would put an end to this distraction and just come to some accommodation and spin WhatsApp or Instagram or both, and shareholders would benefit.
What does it mean for Amazon?
Amazon is going to say okay, ‘We don’t like the way this is going.’ I think they’re going to announce a spin off of AWS [Amazon Web Services], and also take some off-the-record meetings with the DOJ and FTC and ask if spinning AWS will keep the feds off their back. I think Jeff Bezos does not want to be in the position that Mark Zuckerberg and [Google CEO] Sundar Pichai are in right now.
Do you think Facebook will dig in for the long run?
They’ll absolutely dig in, at least initially. They want to appear like they’re going to the mat. Or I guess the honest answer is I don’t know. Because it’s Mark Zuckerberg’s company and I have trouble predicting his behavior. But 100 percent they will publicly say, ‘We’re going to fight this to the death!’ Whether or not they actually make overtures to see if they can come to some sort of accommodation or settlement before going to court, we’ll see.
What will their argument be?
Every other word in their defense will be “tik” and “tok.” “Look at Tiktok! The Chinese are coming for us!” They will make a nationalist argument, “You are taking a national champion and lowering our guard such that the Chinese are going to overrun our innovation economy.”
But what’s interesting here though, is that consumers don’t know what they’re missing. Envision a world where WhatsApp had never been acquired. It was acquired in 2014 for $19 billion. At some point it would have had to have started generating revenue and there’s a good chance WhatsApp would have figured out that it needed to go into collaboration or video. I don’t know if WhatsApp would have morphed into what Zoom or Slack or Teams are right now. WhatsApp represents a huge opportunity and what Facebook has done is made it into a data feeder for Facebook. But would you really argue WhatsApp has innovated? As consumers, we don’t know what might have been. When PayPal is on its own and innovates as a standalone company, it ends up being worth 7 times more than what its parent company, eBay, is worth.
There’s a decent amount of anger toward Facebook now and a recognition that there are few firms in history that have done this much damage on this scale this fast. This is absolutely the beginning of the end of Facebook as we know it. Two points — the case against Google and the case against Facebook — create a line, and the trajectory is toward breaking up these companies.