This is the second installment of a series about the Facebook monopoly. The first post discussed how the U.S. Federal Trade Commission should delineate the Facebook monopoly. Cloudflare's recent post about Amazon's monopoly within its industry inspired me.
It was possible that it was a competitive tactic. But I believe it more to be a patriotic duty: to provide guidance for legislators and regulators regarding complex issues. My generation has seen with sadness and trepidation how technologists who have never used email ask legislators about products that have permeated our lives for decades in ways we don't yet fully understand.
My company and I both stand to lose little, but I am a participant in the latest generation social media startups and an American concerned about the future of democracy.
Mark Zuckerberg has achieved his Key Largo moment.
Executives of AT&T, the world's leading technology company, met in secret at Key Largo, Florida, May 1972. Their company was in financial crisis.
Ma Bells monopoly was a monopoly that included a holy trio: Western Electric (which made up the vast majority of American telephones and cables), the lucrative long-distance service for personal and business use, and the local telephone service which Ma Bells subsidized to maintain its monopoly.
The three branches of government, regulators, and courts, fought with AT&Ts lawyers over the next ten years, battering its reputation. AT&T's dissolution was forced by a consent decree in 1982. The largest company in the world fell to 30% of its total book value, and seven independent Baby Bell regional operating businesses. The AT&T brand would survive, but the business as we know it was dead.
Mark Zuckerberg is undoubtedly the greatest technologist in our time. He has outgunned and outsmarted every other software entrepreneur for more than 17 years. The U.S. Federal Trade Commission reopened its antitrust case against Facebook earlier this month.
The attack on its holy trinity of Facebook Blue and Instagram is directed at WhatsApp. The fight is gaining momentum for all three branches of government, including regulators, courts, legislators, and regulators. In the meantime, the media keeps pounding the company's reputation, and it is gaining steam. Facebook is the AT&T of our times. Zuckerberg has been telling us for so long to be fast and break things. He needs to destroy Facebook.
Facebook exists to connect the world and make it more open, as Zuckerberg stated in his 2012 IPO prospectus. He will now spin off Instagram, WhatsApp and other services to give them a fighting chance. This would be the ultimate Zuckerbergian move in chess. Zuckerberg would lose his voting control and power over these entities. However, he would be able to scatter the opposition with his actions. It is easy to see why:
The United States government is going to dismantle Facebook. It's not a question of if, it's a matter when. Facebook is already losing. Facebook Blue, Instagram, and WhatsApp all face existential dangers. Facebook's efforts to right its ship will be thwarted by government pressure. Facebook will be more valuable to shareholders than three companies.
This is not a criticism, but an admiration. I believe that much of the criticism Zuckerberg has received unfairly. Facebook faces Sisyphean tasks. Facebook faces Sisyphean tasks. The FTC won't let Zuckerberg cough without an investigation.
How can Facebook sustain itself long-term if it doesn't have the chance to acquire new talent and technology? Terry Semel, a Yahoo founder, offered $1 billion to purchase Facebook in 2006. Zuckerberg said, "I just don't know if Terry Semel wants me to work for him." Mark Zuckerberg is now Terry Semel, whether it's fair or not.
Facebook will be dissolved by the government
It's not a question of if, it's a matter if.
Senator John Sherman, who was the founder father of American antitrust, made a famous speech to Congress in 1890. He said: If we won't endure a monarch as a political power we shouldn't endure a ruler over the production, transport, and sale of all the necessities of our lives. We should not be willing to submit to an emperor if we don't want to submit to an autocrat in trade who has the power to stop competition and fix the price of any commodity.
This sentiment is driving the growing resistance to Facebook's monopoly and it doesn't seem to be abating. Zuckerberg proudly calls Facebook the fifth estate. We only have four estates in the United States.
The federal government's three branches are pursuing their goals. A rare bipartisan coalition is emerging in the Senate. Senators Amy Klobuchar, Mark Warner (D–VA), Elizabeth Warren, and Josh Hawley are each fighting multiple fronts.
Nancy Pelosi (D-CA), Speaker of the House, has called Facebook part the problem. Lina Khans FTC is also just getting started. The White House feels burnt by Facebook's misleading lobbying. State attorneys general will also assist the Department of Justice. The courts will continue to work slowly, but surely, in executing justice.
After Chris Hughes' 2019 New York Times op ed was published, Zuckerberg stated that Facebook's enormous size allowed it to spend more money on safety and trust than Twitter does in revenue.
Zuckerberg stated that if democracy and elections are what you care about, you would want a company such as ours to be able invest billions per year in advanced tools to combat election interference.
While this could be true, it doesn't prove that the concentrations of power in one person are consistent with U.S. policy. The centralized operations could also be easily rebuilt in separate entities.
Zuckerberg has failed to quickly make judgments on the information that his safety and trust team provides, regardless of whether it is about Holocaust denial, election propagandism, or vaccine misinformation. Even before a decision is made the team's structure disincentivizes it to measure anything that could damage Facebooks brand. This is not compatible with U.S. democracy. The New York Times' army of reporters will continue to uncover scandal after scandal, contrary to Zuckerberg's narrative. The signs are on the wall.
Facebook is losing
Facebook Blue, Instagram, and WhatsApp are all facing existential threats. Facebook's efforts to right this ship will be thwarted by the government.
Facebook has been the dominant social media company for so many years. However, if you ask Chinese tech executives about Facebook today they will quote Pony Ma, Tencent founder: Even if a giant falls his corpse will remain warm for a while.
Facebook's recent decline begins with its brand. Facebook's image has been irreparably damaged by the countless scandals that have erupted over the past decade. The Facebook Blue is not popular among younger users. Facebook's reputation is in disarray as it has been polled internally on two key metrics: cares about users (CAU), and good for the whole world (GFW). Talent is also fleeing; Instacart recently hired 55 Facebook executives.
Instagram and WhatsApp were both real threats in 2012 and 2014. Both were acquired by Facebook. They are two of the most valuable and underutilized assets in the company's portfolio. These are the most underinvested telephone networks in our time.
Instagram's head Adam Mosseri declared that Instagram no longer views itself as a photo-sharing platform. Its focus now is entertainment. According to media reports, Instagram is now competing with TikTok.
TikTok's strength is a threat to our existence. Children aged 4-15 years old spend an average of 80 minutes per day on ByteDances TikTok. And this is just the beginning. As social media products have always done, the demographics are rapidly expanding beyond teens. It could be too late for Instagram. As a part Facebook, Instagram can't acquire the technology or retain the talent that it needs to compete against TikTok.
Squarespace could acquire Instagram to boost its e-commerce offerings or Etsy would create a meaningful marketplace. Instagram is a part Facebook.
A standalone WhatsApp could also easily reach a market capitalization of $100 billion. WhatsApp is a trusted brand for its security products, but it has been damaged by Facebook connections. Discords are a serious threat and WhatsApp has not innovated to meet this generation's desire for community-driven messaging. Snapchat is also a potential WhatsApp killer. Snapchat's young users use video and photography as a communication medium. Snapchat is now the preferred platform for top augmented reality talent on Facebook.
WhatApp, which has 2 billion monthly active users could be a privacy-focused option to Facebook Blue. It would logically offer expanded profiles, photo-sharing capabilities, and other features that would enhance its offerings. WhatsApp, which is owned by Facebook Blue and Messenger, has been underinvested. It has been a disaster for shareholders.
Facebook Blue is also struggling beyond Instagram and WhatsApp. Although Q2's earnings were impressive, the rise in revenue was not enough to hide a troubling sign. Ads increased by 47% while inventory grew by only 6%. Facebook is having trouble finding new locations to run its ads. Why is this? Facebook's core social graph is too outdated.
I still remember fondly the day Facebook was introduced to my high school. I now have thousands of Facebook friends. My friends have moved on from Facebook so I don't use Facebook anymore. A decade ago, many people wished me a happy birthday every year. It was 24 people, half of which were over 50. I'm 32 years old. Teen girls are the leaders of social media, and many don't even have Facebook.
The news coverage has focused on Zuckerberg's latest push into the metaverse. But the question remains: Why would a Facebook serious about the metaverse purchase Roblox? The FTC wouldn't allow it at the moment.
Facebook's current, clunky attempt to create a hardware solution with an emphasis on the workplace shows little promise. CNN reported that the launch was not a success. While Bosworth was explaining how he views Workrooms as an interactive way to connect with coworkers virtually than video chats, his avatar stopped midsentence. The pixels of its digital skin changed from flesh-toned gray to flesh-toned. He had been disconnected.
This is not the Facebook of old. This is Facebook that has gone gray, and it's freezing in the middle of a sentence.
Facebook will bring more value to shareholders than three distinct companies
Zuckerberg's 58% control over Facebook voting shares has prevented a typical Wall Street reckoning. Investors are tired of Zuckerbergs unilateral power. Many people believe that the company is worth more than the sum of its parts. This is evident in the AT&T's successful breakup.
Five years after AT&T's 1984 dissolution, AT&T and its Baby Bells value had more than doubled in comparison to AT&Ts market capitalization before the breakup. Western Electrics market share was hampered by Japanese entrants, but there was greater competition in telephony that spurred innovation and investment among the Baby Bells.
AT&T shifted its focus to IBM and the future information age. AT&T was smaller and more agile, able to concentrate on the future instead of dwelling on the past.
Facebook Blue, Instagram, and WhatsApp can be used as a stand-alone Facebook Blue. They could attract talent and acquire new technologies that will dramatically change their futures.
Facebook's recent resistance to the $400 million GIPHY acquisition by the U.K. shows that it will have a hard time acquiring even small bolt-ons.
Zuckerberg was always one step ahead. Zuckerberg has always been one step ahead.
As Zuckerberg's company experiences body blows and uppercuts, regulators are tied his hands behind his back. Carpe diem, as Zuckerberg's idol Augustus Caesar may have said. Facebook needs to be broken.
