Facebook

Facebook's 'Monopoly' Was Always Doomed

No federal intervention required.

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It's been quite a while since Facebook was cool. But until very recently, it continued to amass active users. And this seemingly unstoppable growth helped fuel arguments for the U.S. government to step in and "break up" Facebook or craft new laws to target it.

"Facebook is dangerous because Facebook is a MONOPOLY - with unprecedented power over communication. End it," Missouri Republican Sen. Josh Hawley has tweeted. Sen. Elizabeth Warren claims that "anybody on the internet knows that Facebook has monopoly power," which is why "we need stronger antitrust laws to #BreakUpBigTech." The idea has had a wide reach (even Teen Vogue now declares that "Facebook is a monopoly"), as has the claim that new competitors can't stand a chance against it.

"It is very difficult for a new entrant to displace an established personal social network in which users' friends and family already participate," the Federal Trade Commission says.

These arguments started gaining political traction at a funny time—just as Facebook started shedding U.S. users (with the drop especially steep among young people) and a new social network started rising. If the long history of technological change and digital dynamism didn't already suggest that intervention was unnecessary to quell Facebook's eternal expansion, this chip in its armor should have been another clue.

Now, that chip is getting bigger. Last week, the company revealed in an earnings report that it shed daily users globally in late 2021. During the last three months of the year, it lost around half a million daily users.

Facebook also said on a call about the earnings report that Apple's new App Tracking Transparency feature, meant to protect iPhone user privacy, could reduce Facebook revenue to the tune of $10 billion this year.

The news sent stock for Facebook parent-company Meta plummeting by around a quarter and Meta's market value plunging from nearly $900 billion to around $660 billion. "Meta dropped below Microsoft in terms of market value," Bloomberg reported last Saturday.

The invocation of Microsoft is fitting. In the 1990s, politicians and regulators got a bit obsessed with the idea that Microsoft held an unfair monopoly over various aspects of computing and web browsing. In a years-long legal battle, the feds and Congress used antitrust law to try to thwart Microsoft's dominance and break up the company.

The government's case against Microsoft failed at this task—but dynamism didn't. Microsoft's market share, power, and prestige diminished as other companies—like Apple and Google—proved better at adapting to, making, and marketing useful new technologies.

That this same plight will befall Facebook has seemed a pretty good bet for a while now. Young people don't use it. People of all ages have grown frustrated with it. The network effects that initially made it so attractive (of course you join Facebook, all your friends are there!) began to backfire: did you really want to know what your junior high English teacher scored in Farmville or how your third-cousin felt about Trump? Constant changes made using the site a pain for regular users (separating messenger into a separate app, for instance) and for publishers (for whom ever-shifting algorithms and content policies stood as obstacles to user eyeballs). Meanwhile, a series of high-profile content moderation decisions managed to convince basically every faction of American politics and culture that the company is against them.

Facebook did see some major expansion by acquiring Instagram and WhatsApp (services that a number of politicians now want to forcibly split up from Facebook). But, time and again, other new business lines or products—like its recent wade into cryptocurrencyhave failed. Attempts to compete with existing businesses or products like Groupon, Gmail, Foursquare were also total misses.

And the idea that the "metaverse" will save Facebook is laughable. We've been here before—see virtual reality games in the '90s, Second Life circa 2007 (or 2015), and the buzz around augmented reality porn and headsets like Oculus Rift and Google Glass last decade. Virtual reality is an interesting idea, but people have been hyping it as the next big thing for quite a while and so far it's yet to catch on.

Besides the waning appeal of its main product and failed forays into others, Facebook's business model and single revenue stream make it vulnerable. "Digital advertising accounts for 98% of Meta's revenue, and it also accounts for 81% of [Google parent company] Alphabet's," noted Bloomberg columnist Parmy Olson earlier this month. The digital ad model has been a good bet for nearly two decades, but that doesn't mean it always will be. Ad growth is now happening at slower rates, and "an end to strong growth often means an end to dominance, especially when you don't have a backup," as Olson writes.

All of this has suggested Facebook can't stay social king forever. TikTok is making that even more apparent.

As Facebook has been shedding users, TikTok has been expanding like mad, reaching 1 billion global monthly users last year (up from 55 million in 2018). In the U.S., where it launched in 2017, it went from around 11.3 million active users in 2018 to around 100 million active U.S. users in 2020. It now has an estimated 120.8 million active adult users in the U.S., according to data analysis firm Kepios.

TikTok last year also displaced Google as the most visited place on the internet.

TikTok may be the best argument against claims that Facebook has a monopoly on social media services—something the Federal Trade Commission has been arguing in court.

Last June, a judge tossed the FTC's complaint, saying it had failed to sufficiently allege that Facebook actually was a monopoly. But the court left room for the FTC to try again, and this January a judge ruled that an amended complaint could proceed. This decision does not mean that the court necessarily agrees with the FTC's monopoly claims, merely that the agency didn't make such a poor case this time around. Now, the government will be tasked with backing up its monopoly claim.

Facebook's waning numbers and value, and TikTok's ascension, should complicate the government's narrative. But don't expect it to dampen enthusiasm in Congress for changing antitrust laws. That battle has never been based on a realistic assessment of consumer harm or competition. Rather, it's driven by generalized animosity toward big tech on both sides and toward big business on the left, coalescing on a desire to change antitrust law to reign in, punish, or profit off of big companies.

If political leaders were being realistic, they would realize that the Facebook era is already on its way out, because that's how trends and markets and technological dynamism work. Nothing can stay the hot new thing—or even the old and omnipresent thing that appeals to everyone—forever.

Facebook is still a behemoth, and it has a long way to fall before that will cease to be true (if it ever is). I'm not suggesting we start writing eulogies yet. But the U.S. (and European Union) antitrust push against Facebook and other big tech companies assumes—and often explicitly argues—that Facebook's power is permanent and its market share irreversible. Recent developments and ancient history show that's very obviously not the case.