Facebook Internal Memo on Rivals Undercuts Antitrust Defense

© Bloomberg Mark Zuckerberg, chief executive officer and founder of Facebook Inc., speaks during a House Financial Services Committee hearing in Washington, D.C., U.S., on Wednesday, Oct. 23, 2019. Zuckerberg struggled to convince Congress of the merits of the company's plans for a cryptocurrency in light of all the other challenges the company has failed to solve.

(Bloomberg) -- Facebook’s parent company insists that its social-networking and messaging services have dozens of outside rivals, but an internal memo reveals that Meta Platforms Inc.’s top executives were more worried about the threat posed by its own products.

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The memo, written in October 2018 for Chief Executive Officer Mark Zuckerberg and other executives, maps out the company’s growth strategies. It outlines ways to prevent Instagram and WhatsApp, acquired by Facebook in 2012 and 2014 respectively, from cannibalizing Facebook’s trajectory. 

The memo figured prominently in a congressional inquiry into competitive practices across the technology industry that focused on some of the biggest companies, including Meta’s Facebook. The House Judiciary antitrust subcommittee released the memo Tuesday for the first time in its entirety as part of its final report on competition in digital markets. 

© Bloomberg Mark Zuckerberg, chief executive officer and founder of Facebook Inc., arrives after a break during a House Financial Services Committee hearing in Washington, D.C., U.S., on Wednesday, Oct. 23, 2019. Zuckerberg struggled to convince Congress of the merits of the company's plans for a cryptocurrency in light of all the other challenges the company has failed to solve.

The memo, which Meta turned over voluntarily, helped shape the antitrust panel’s crafting of proposed antitrust legislation that would affect the company, according to a person familiar with the matter who was granted anonymity to discuss non-public deliberations. One of those measures could be voted on by Congress as soon as next week. 

The American Innovation and Choice Online Act would force Meta to provide the same level of access to its platforms that its own products have –- for example, increasing the ability of users to cross-post or import contacts to other social networks.

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Christopher Sgro, a Meta spokesman, noted that the memo wasn’t new and was turned over to the House panel. “The full record confirms what we have said from the beginning of these proceedings -- that we operate in a highly competitive space, and our acquisitions have been good for competition, good for advertisers, and good for people.” 

The legislation has advanced in the House and the Senate, but requires a final vote in both chambers. Meta opposes the bill, as do Alphabet Inc.’s Google, Amazon.com Inc. and Apple Inc.

The memo shows that Facebook is “trying to compete on size, not quality,” said Charlotte Slaiman, competition policy director for the non-profit consumer advocacy group Public Knowledge, which calls for more aggressive antitrust enforcement against technology giants.

The US Federal Trade Commission sued Meta in late 2020 to force it to divest Instagram and WhatsApp, alleging that Facebook broke anti-monopoly laws even though those deals weren’t challenged at the time. 

The fact that Meta executives were more concerned about Instagram and WhatsApp than other rivals years after the acquisitions proves they were important nascent competitors, said a former FTC official. Either of them could have grown to challenge Facebook’s dominance, but instead acted as a bulwark to help maintain the monopoly, the person said, requesting anonymity to discuss the agency’s case.

Meta argues that it faces “intense competition” in the social networking space and has sought information from what it says are more than 100 rivals including ByteDance Ltd.’s TikTok, Google, Apple Inc., Twitter Inc, Pinterest Inc. and Snap Inc.    

That argument is belied by the company’s internal analysis. Social apps benefit from a “ratchet effect” where users tend to get hooked on one service, according to the memo. Only one messaging and one sharing app can dominate a market, wrote Thomas Cunningham, a former Facebook senior data scientist and economist.

Earlier: Meta Seeks TikTok, Telegram, WeChat Data for Antitrust Defense

“Once users start using a social app, their use declines slowly,” Cunningham wrote. According to his LinkedIn profile, he now works at Twitter.

The memo concluded that while, in some countries, Facebook and WhatsApp were both popular, “it remains unclear whether Instagram and Facebook can coexist” and “it seems unlikely that three Sharing Apps can coexist.”

The Information first reported on a portion of the memo in 2019.

The document used internal data to show that in nations where WhatsApp was popular, Facebook’s Messenger app had little usage and vice-versa.   

While other social apps exist, they only succeed if they connect a different group of users, the memo found. For example, Microsoft Corp.’s LinkedIn connects coworkers, while Nextdoor Holdings Inc. connects neighbors, instead of Facebook’s focus on friends and family. Other apps like Google’s YouTube and Spotify Technologies SA are popular for specific things such as watching videos and listening to music, but not specifically for sharing.

Apple’s iMessage poses a threat to both WhatsApp and Messenger, the memo said, but those products have an advantage since they work on Apple and Android phones. 

The Cunningham memo is cited repeatedly in the House report to explain Facebook’s dominance in the social networking market. The company’s predominance in the market makes it hard for rivals to compete, since new social networks would have difficulty attracting the same level of users, the report found. 

(Updates with Facebook comment in sixth paragraph. Earlier versions of the story were corrected to show that Meta turned over the document to the House panel voluntarily)

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