Mark Zuckerberg made a “special announcement” on national television on August 19th. The timing is more interesting than ever. This is the day Lina Khan’s FTC (Federal Trade Commission) resubmitted the proceedings to dismantle Facebook’s monopoly.
To the average person, Facebook’s monopoly is obvious. As Judge James E. Boasberg of the Federal District Court for the District of Columbia stated in a recent ruling, “The title of the 2010 movie The Social Network, no one knows which company it’s about”.
However, obviousness is not a measure of antitrust. The monopoly has a clear legal meaning, and so far Lina Khan’s FTC hasn’t met it. This resubmission is far more substantive than the FTC’s first attack. However, there is still a lack of critical debate. I would like to give some opinions from the front line.
First, the FTC must define the market correctly. A definition of a personal social network that includes messaging. Second, FTC must prove that Facebook dominates more than 60% of the market. The correct indicator to prove this is revenue.
Consumer damage is widely recognized as a touchstone of monopoly judgment, but the court has not asked the FTC to prove that Facebook is damaging consumers and win. But as an alternative, the government can make a compelling claim that Facebook is damaging consumers by curbing wages in the creator economy.
If the creator economy is real, the value of advertising on Facebook’s services should be created by the work of creators. Without user-generated content, no one would see an ad before a video or between posts. Facebook is damaging consumers by curbing creators’ wages.
Editor’s Note: This article is the first in a series on Facebook monopoly. A recent Cloudflare blog post described the impact of Amazon’s monopoly on the industry, but I was impressed. Perhaps it was a competitive tactic, but I’m really convinced that it’s a more patriotic duty. It is a guide for lawmakers and regulators on complex issues. The author’s generation tells the front-line engineers of our time about products that have long permeated our lives in ways that we don’t yet understand, by lawmakers who rarely use email. I have seen him asking questions in sadness and anxiety. There is little to be gained from this, either individually or in-house. But as a participant in the latest generation of social media start-ups, and as an American concerned about the future of democracy, I feel obliged to take on the challenge.
Problem
According to the court, the FTC must meet a two-part metric. The FTC must first define a market in which Facebook has the monopoly power demonstrated by the DC Circuit Court of Appeals (Court of Appeals) in Neumann v Reinforced Earth Co. (1986). This is the market for personal social networks, including messaging.
Next, the FTC must prove that Facebook has the dominant share of the market: more than 60% as defined by the court. This was set by the Third Circuit Court of Appeals in the FTC vs. AbbVie proceedings (2020).
The correct metric for this market share analysis is undoubtedly revenue, which is the number of daily active users (DAU) x average revenue per user (ARPU). And Facebook holds over 90%.
The answer to the FTC issue is clear from Snapchat’s investor presentation.
Snapchat July 2021 Investor Presentation “Significant DAU and ARPU Opportunity”
This is a graph showing Facebook’s monopoly status, which accounts for 91% of the personal SNS market. The gray block looks like a huge reservoir that Facebook’s Standard Oil division has successfully drilled.
Snapchat and Twitter are small oil explorers and have little to do with Facebook’s size. All market observers will agree that Facebook once tried to buy both companies.
The market includes messaging
The FTC initially claimed that Facebook had a monopoly on the “personal social networking services” market. The complaint excludes “mobile messaging” from the Facebook market because “(i) there is no’shared social space’for interaction and (ii) find other users that users may know. We haven’t adopted a social graph to ‘become friends’.”
Messaging is inseparable from the power of Facebook, which is incorrect. Facebook has proved this with the acquisition of WhatsApp, the promotion of Messenger, and the acquisition of Snapchat and Twitter. Any personal social networking service can extend its capabilities. And Facebook’s moat depends on messaging controls.
The longer you spend in the ecosystem, the more valuable it is. Value in social networks is calculated algorithmically (Metcalfe’s law) or logarithmically (Zip’s law), depending on who you ask for. Either way, 1 + 1 is much more than 2 on social networks.
Social networks add value as the number of nodes on which businesses can build more functionality continues to grow. Zuckerberg described this relationship with the term “social graph”.
The monopoly of LINE, Kakao and WeChat in Japan, South Korea and China clearly demonstrates this. They started with messaging, expanded outwards, and became giants of personal social networking.
In this submission, FTC explains that Facebook, Instagram, and Snapchat are all personal social networking services that use three key features.
- “First, personal social networking services are built on a social graph that maps users to friends, family, and other personal connections.”
- “Second, personal social networking services regularly allow many users to interact with their personal connections and share their personal experiences in shared social spaces, including one-to-many’broadcast’ formats. It contains the features you want to use.”
- “Third, personal social networking services include the ability for users to find and connect to other users, making it easier for each user to build and extend personal connections.”
Unfortunately, this tells only a small part of the truth. In the dangerous realm of social media, feature sets are routinely copied and cross-promoted, as the FTC struggles with the statement. Can you forget that Instagram copied the story of Snapchat?
From the beginning, Facebook has mercilessly copied the features of the most successful apps on the market. The launch of Live Audio Rooms, which competes with Clubhouse, is probably just the latest example. Twitter and Snapchat are Facebook rivals.
Messaging must be included to show Facebook’s widespread and greedy desire to copy and destroy. WhatsApp and Messenger have over 2 billion and 1.3 billion users, respectively. Given the ease of feature copying, WhatsApp-scale messaging services could become a full-fledged social network in the coming months.
That’s why Facebook bought the company. The breadth of Facebook’s social media services is stunning. But the FTC needs to understand that messaging is part of the market. And admitting that wouldn’t interfere with their appeal.
Metric: Revenue Shows Facebook Monopoly
Judge Bosberg believes revenue is not a good metric for calculating personal networking. “The total revenue generated by the PSN service is not the correct metric for measuring market share, because all of these revenues are from another market, the advertising market.” He confuses business models with markets. Not all ads are separated from the same cloth. In today’s resubmission, the FTC accurately distinguishes “social ads” from “display ads”.
But the FTC is trying to avoid using revenue as a clear market share metric. Instead, the FTC cites “time spent, daily active users (DAU), monthly active users (MAU)”. In a world where Facebook Blue and Instagram compete only with Snapchat, these metrics may exceed the 60% monopoly hurdle for Facebook Blue and Instagram combined.
However, the FTC has not made a sufficiently compelling discussion of market definitions to justify the choice of such indicators.
Facebook is compared to other personal social networking services like Discord and Twitter should and if they are properly included in the market, the time spent and the choice of FTC as DAU / MAU will lose their meaning.
After all, money is the king. Revenue is important and should be emphasized by the FTC. As Snapchat shows above, revenue in the personal social media industry is calculated as ARPU x DAU.
The personal social media market is different from the entertainment social media market (Facebook competes with YouTube, TikTok, Pinterest and others). It is also a market separated from the display search advertising market (Google).
Not all ad-based consumer technologies are built the same. Again, advertising is a business model, not a market.
In the media world, for example, Netflix subscription revenue is clearly competing in the same market as CBS’s advertising model. News Corp.’s acquisition of Facebook’s early rival MySpace speaks a lot about the potential of the Internet to destroy the traditional media advertising market.
Snapchat chose to pursue advertising, but early rivals like Discord are seeing steady growth with subscriptions. However, its market share is still low compared to Facebook.
Alternative complaint: Facebook’s market power is curbing wages in the creator economy
The Fair Trade Commission has argued for the smallest possible market for the definition of monopoly. Personal social networking, where Facebook controls at least 80%, should not include entertainment (in the strongest claim). This is the narrowest argument with the highest chance of success.
But they take a bigger swing, where they could choose to have a broader discussion with alternatives. Traditional economic consumer hazard metrics are sufficient for the hazards of Big Tech, as Lina Khan noted in a 2017 memo that launched the New Brandeis movement about Amazon.
Not dealing with. The harm is too abstract. Antitrust law is priced, as White House adviser Tim Wu argued in “The Curse of Bigness,” and Judge Bosburg admits in his opinion. It does not depend solely on the effect. Facebook can split without proving the negative impact of price effectiveness.
But Facebook is damaging consumers coming. Consumers are the workers whose work constitutes Facebook’s value and are low-paying. If you define personal networking as including entertainment, YouTube is a doctrine.
On both YouTube and Facebook sites, influencers can earn value by charging the brand directly. That’s not the topic here. The issue is the percentage of advertising revenue paid to creators.
The traditional percentage of YouTube was 55%. YouTube has announced that it has paid $ 30 billion to creators and rights holders over the past three years. Conservatively, half of the money will be allocated to rights holders.
In other words, the average revenue of creators is 15 billion dollars, 5 billion dollars annually, which is 46 billion dollars of YouTube during that period. Will account for a significant portion of the revenue.
In other words, YouTube paid creators one-third of its revenue (which obviously doesn’t take into account YouTube’s non-advertising revenue).
Facebook, on the other hand, just made changes just a few weeks ago by announcing a tiny $ 1 billion annual program. Sure, creators may be getting some revenue from interstitial advertising, but Facebook hasn’t disclosed a percentage of that revenue. It would be insulting.
In the three years equivalent to YouTube’s announcement, Facebook has generated $ 210 billion in revenue. One-third of that is calculated to be 70 billion dollars, and the amount equivalent to 23 billion dollars, annually will be distributed to creators.
Why hasn’t Facebook ever paid creators? Because it wasn’t necessary. Facebook’s social graph is so big that creators have to post there anyway-the scale of Facebook Blue and Instagram’s success allows creators to monetize by selling directly to the brand. Facebook ads are valued by the workforce of creators.
The social graph cannot exist unless the user produces the content. Creators are eligible to receive more than their own scrap. Facebook is curbing creators’ wages because it’s possible. This is what a monopoly company is doing.
Facebook Standard Oil Spirit
Facebook has long been the social media Standard Oil. Zuckerberg revealed in July that it was refocusing on Roblox’s pioneered market, the Metaverse. Facebook continues to dig after achieving a monopoly on personal social media and competing with entertainment social media for virtual reality.
Sure, Facebook may be free, but its monopoly is harming Americans by curbing creators’ wages. Antitrust law stipulates that under the Sherman Act, consumer damage is not a prerequisite for proving monopoly. Monopoly is illegal.
By resubmitting accurate market definitions and market share, the FTC has more than an opportunity. I’m sure it will win.