The FTC should have clipped Facebook’s wings years ago

The problem with allowing the social media giant to mop up potential pretenders to its throne should have been obvious to anti-trust regulators long before now

Facebook chair and CEO Mark Zuckerberg testifies at a House Financial Services Committee hearing in Washington (Reuters)

“Put down that whisky, Zuck, the regulatory sheriff’s in town and you’re coming to jail,” Sheriff FTC declared, throwing open the doors to the Silicon Gulch Saloon.  

He’d ridden into town at the head of a more than 45-strong posse of state deputies and was feeling good that he had them all behind him. Finally, he thought, the man who’d bought up the town’s entire supply of social media brand sippin’ whisky, and had been causing a ruckus ever since, was going to be brought to book.  

There was a pregnant pause, as he eyed the elegantly dressed back of his quarry, who was studiously ignoring him. “Oh I don’t think so,” said Zuck, finally turning around, having adjusted his hat and taken a meditative sip from his glass. “Come on in, boys.”

And suddenly the bar was filled with lawyers, each holding a different piece of paper signed by a different judge.  

“The first question I have,” said Zuck, snickering at the hangdog expression that had appeared on the sheriff’s face, “is this: if you didn’t want me sippin’ on this here product, how come you let me buy up the entire stock in the first place?”

That, in a nutshell, if you’ll forgive my injecting a little colour into the story, was Facebook’s initial response to the Federal Trade Commission’s attempt to bring the hammer down with a lawsuit accusing Facebook of operating an illegal monopoly and gobbling up rivals to stifle competition.  

Facebook, you won’t be surprise to learn, sees it very differently. It’s initial riposte? To paraphrase: how on earth do they expect a fine American business like ours, which consumers love and rely on, to do what we do if those vexatious paper pushers at the regulator change their minds after letting us buy all this stuff by asking for “do overs” every five minutes?

Mark Zuckerburg better hope Facebook’s communications guru Nick Clegg – remember him? – can come up with something better than that in future because the FTC had an answer. It said: we’re allowed to change our minds (and given the way you’ve been operating and the political winds have been blowing, we didn’t have much choice).

Facebook’s complaint that the FTC said nothing like this when it acquired Instagram, WhatsApp, and so on actually works quite well for its critics who might also be inclined to point out that the problem with allowing the social media kingpin to mop up the potential pretenders to its throne and install them in its army should have been obvious to anti-trust regulators a long, long time ago and that the FTC should have acted then rather than now.  

It’s true that, say, Instragram might not have looked like much of a competitor when Facebook bought it for what amounts to big tech chump change – $1bn in cash and shares – in 2012.  

But it was growing like an invasive plant species at the time, which is precisely why Facebook acted. Note to regulators: tech firms grow very quickly. Today’s small(ish) deal is how you get your hands on tomorrow’s behemoth.  

Tech, and especially social media, naturally favours monopolies because users tend to flow to the biggest platforms. If you let the owners of those platforms gobble up innovators, which might stand a chance of diverting some of that liquidity towards their services, you will simply cement that.  

The FTC’s filing recognises this – it wants to monitor every acquisition Facebook makes above $10m (£7.5m). That’s a good move, even if the watchdog is ultimately engaged in trying to shut the stable door after the horse has bolted.

Blocking deals is never easy, especially when you operate in a complex, legalistic system. The bellyaching on the rare occasions when it happens is usually loud enough to cause a serious case of tinnitus if you don’t have a pair of headphones handy.

The problem, of course, is that this means Facebook has had years to prepare for this very moment with what are, for all practical purposes, unlimited resources. It’s not just a case of Facebook hiring the best lawyers. It’s also been able to integrate its acquisitions to the extent that it might be very hard to practicably break the thing up, even if a court were minded to give the green light to the FTC’s idea. That’s an argument Facebook’s lawyers are bound to make.  

Don’t get me wrong, this matters. It’s rightly being billed as every bit as important as the Microsoft/Internet Explorer case, when the US Department of Justice accused Microsoft of operating an illegal monopoly in the PC market by preinstalling lots of its software with its Windows operating system, notably Internet Explorer. It ultimately ended in a much criticised settlement at the dawn of the millennium that allowed third party developers somewhat better access.  

Opponents argued that the latter really amounted to little more than a slap on the wrist. Others say it ultimately gave the likes of Google, whose Chrome browser left Microsoft’s product for dead some time ago, the space it needed to grow. Google, of course, is also now in the crosshairs of anti-trust regulators.  

Wall Street was nervous but hardly panicking in response to the Facebook news, which shouldn’t have come as a surprise.  

How will it end? Much depends on Sheriff FTC’s gumption and, inevitably, the shifting tides of politics. But another messy compromise and maybe Zuck feeling a mild stinging sensation in the vicinity of his wrist is probably the best bet.