Antitrust 10/01/2020

Splitting Instagram From Facebook Would Punish Success and Hurt Consumers

Chris Marchese
Chris Marchese Counsel

The purpose of antitrust law is to protect consumers—not punish success. But Facebook’s critics want to change that. To them, Facebook is just too big—too popular, really—to offer both Facebook and Instagram. It’s unfair for Facebook to be so successful, we’re told, so the government must force Facebook to sell Instagram. 

Whatever appeal this redistribution of success holds, it will be a disaster for consumers in the short and long term. Critics don’t seem to understand that the Instagram we have today is because of Facebook’s investment in, and integration with, the platform.

Short-term Harm to Consumers:

Before it was bought by Facebook in 2012, Instagram was a small platform with roughly 20 million users. Although its user base was growing, the platform had no revenue streams and no plans for revenue streams. Instagram stayed afloat solely because venture capitalists were underwriting it temporarily. But these investors’ checks were not unlimited and they wanted a return on their money.

Money problems aside, Instagram also faced problems with spam. The platform had no technology to detect and remove spam, let alone prevent it. Because Instagram didn’t have enough full-time employees to dedicate to the problem, it relied on users to report spam. Perhaps that wouldn’t have been so bad but the platform was overrun with spam, requiring users to not just report tons of instances of spam but also put up with a subpar user experience. Both threatened Instagram’s growth. 

The platform was also a downgraded shell of its current self. Instagram remains similar to what it was then: a platform for users to edit, share, and interact with photos. But today’s Instagram is much more than that. Thanks to Facebook, Instagram is now a full social media platform that not only lets users edit, share, and interact with photos, but also lets small businesses reach consumers all over the world and lets users share private and public messages to connect with likeminded people and organizations.

The benefit to small businesses is immense: they can develop brand awareness and a consumer base—for free. And for those that use Instagram’s ad tools, they can pay for targeted digital ads for a fraction of the cost of traditional television or print ads.  

The benefit to consumers is equally as impressive. After Facebook bought Instagram, it integrated its teams and technology to develop an innovative service that offered users far more value than Instagram offered as a stand-alone startup. And by sharing its spam-fighting technology, Facebook ensured Instagram was safe and enjoyable. Facebook also improved Instagram’s security to protect users from hackers and other bad apples.

Today, Instagram has over a billion users and brings in over $20 billion in advertising revenue. While Facebook’s critics cite these statistics in support of ripping apart the companies, that completely misses the point. It’s because Facebook integrated and shared its advertising technology that Instagram was able to develop an independent revenue stream that ensured the platform’s success.

Still, critics baselessly assert this success would have happened regardless of Facebook. That’s hard to believe. As mentioned above, Instagram had no revenue streams—it had no plans for revenue and actively ignored proposals that would have generated income. Given that, Instagram very likely would have failed. And even if it hadn’t, its growth would have been threatened and capped by its growing spam problem. Contemporaneous press reports were full of mentions of the platform’s problems and of users growing frustrated. Without Facebook’s investments, Instagram would have slowly drowned to death because of spam.

And let’s not forget that Facebook’s investments and product innovations transformed the photo-editing app into a social media platform. 

No one can say for certain what would have become of Instagram without Facebook. But given the clear benefits to consumers, it’s awfully silly to punish the platform’s success—and consumers—based on mere theories of what could have been.

Long-term Harm to Consumers:

Forcing Facebook to sell Instagram sets a bad precedent ripe for abuse that will certainly harm consumers. When Facebook proposed buying Instagram in 2012, the Federal Trade Commission conducted an exhaustive investigation and concluded the deal was a good (and legal) one. Now, critics want the Federal Trade Commission to undo the deal—nearly a decade later—because it enabled a superior product that appeals to many consumers and benefits them.

Such an approach is unworkable. Given how integrated Instagram is with Facebook, a forced split would decrease product quality. Without Facebook’s ad or security tools, for example, Instagram and its new owner would have to quickly inject massive capital to keep the site functional.

The precedent set would have substantially negative ripple effects. Many companies understandably rely on the Federal Trade Commission’s word. If a merger’s approval by the Federal Trade Commission is merely contingent on the moderate success of a platform, then companies have the perverse incentive of not improving the acquired product or service.

In other words, if future success is enough to justify a break-up, then companies have every reason to keep their success tame. The line between “acceptably successful” and “too successful” is subjective and thus prone to abuse. Even worse, such subjective precedent is the exact opposite of what we want antitrust law to do—protect consumers and the benefits they receive from the competitive process.

This incentivizes business practices focused on cheap short-term, not long-term, success. Rather than merge with another business to develop a superior product for consumers through investment and integration, this don’t-be-too-successful-or-else approach encourages companies to use mergers as a way to extract whatever value they can before letting the acquired company fail. After all, if the acquired company is kept alive and allowed to thrive, the buyer could be forced to sell at any time in the future. Who wants that headache?

It’s also worth asking—how is it acceptable to force Facebook to sell its own product to someone else, especially when there is only evidence of consumer benefits? Facebook wouldn’t be selling Instagram as it existed in 2012; it’d be selling Instagram as it exists today, improved and transformed because of Facebook’s investments and innovations. 

If that’s acceptable here, then there’s little reason for other companies like Facebook to buy and improve products for consumers’ benefit. This may make those who believe big is bad happy, but they’ll be the only ones celebrating. Consumers will be left wondering why they have to pay the price for a misguided critic’s temporary contentment.