Open Markets Letter to FTC regarding Facebook
Dear Acting-Chair Ohlhausen:
We are writing to request that the Federal Trade Commission conduct a thorough review of Facebook’s dominance in social networking and online advertising; assess the hazards that this dominance poses to commerce and competition, basic democratic institutions, and national security; and issue recommendations on how to address these threats. Until this review is complete, we ask that your agency adopt a presumptive ban on all acquisitions by Facebook.
Our request comes amid growing evidence that Facebook is using its increasing market power in ways that stifle innovation, undermine privacy, and divert readers and advertising revenue away from trustworthy sources of news and information.
Facebook’s role as a critical gatekeeper gives the corporation the ability to regulate communications across vast swaths of American society, and to serve as a self-appointed censor of the content of a large and growing portion of online communications. At the same time, recent events reveal that Facebook has become too big and complex for any executive team to manage responsibly, and has provided a back-door through which America’s enemies can attack our vital social and democratic institutions.
To understand the full scope of the problem, it’s worth first recognizing Facebook’s dominance:
Facebook has 77% of mobile social networking traffic in the United States;1
68 percent of American adults use Facebook;2
53 percent of Americans use Facebook every day;3
45 percent of Americans get news from Facebook;4
Facebook and Google captured virtually all of the growth in online advertising last year, with Facebook alone grabbing 38 percent of that growth;5
Facebook and Google control nearly 75 percent of the $73 billion market in digital advertising; 6
Facebook has 2.01 billion users worldwide, 7 penetrating 26.3 percent of the global population.8
There are two reasons to think that new or existing rivals will not dislodge Facebook’s dominance, or that of other top-tier platform monopolists. First is the fact of network effects, which gives Facebook a great and perhaps permanent advantage online.9 A network effect is what happens when each additional user of a networked system makes the entire system more valuable to all users of that system, who then become both more attracted to, and tied into, the network. Facebook’s ability to gather and store masses of data about the individuals within the network appears to create large additional barriers to entry.
Second, Facebook appears to be using the dominance that comes from its control over this vital social network to crush or acquire nascent rivals in ways that reduce choice, undermine innovation, and harm the ability of individual American citizens to share information and engage in open and direct commerce with one another. 10
In some cases, Facebook has chosen simply to copy the feature set of a competitor, as it appears to have done with Snapchat.11 Such an action can swifty result in fatal harm to a potential rival, as both customers and investors are likely to flee any startup that competes with Facebook once Facebook begins replicating the service. In other cases, Facebook may choose simply to buy up a rival that appears to offer a real challenge to its preeminence. Facebook appears to have done so with its acquisitions of both Instagram and WhatsApp. The recent deal to buy TBH may be another instance of this practice.
Especially disturbing is that Facebook seems to have the ability to spy on its rivals in ways that give it further unfair competitive advantages. According to press reports, Facebook uses an application known as Onavo as an “early bird” warning system for potential competitors. Onavo allows the company to observe a substantial number of internet users and their behavior, providing them with an “unusually detailed look at what users collectively do on their phones,” and a remarkable level of visibility into consumer use of rival products and user interfaces.12 Facebook sees which products are doing well and what features within those products users especially appreciate. The corporation can then use this information to target fast-growing rivals with potentially fatal copycat techniques, and/or to attempt to buy out these competitors.
The most obvious immediate step to address Facebook’s current power is to prohibit mergers between Facebook other potentially competitive social networks or other new and promising products and services. In other words, until the American people, working through our government, determine how to ensure that Facebook’s power does not harm our nation’s security, democratic institutions, or the political rights and commercial freedoms of individual citizens, Facebook should not be able to amass any greater power through acquisition. 13
We believe such an action may also provide a model with which to begin to address the power of other dominant online platforms as well.
Given the FTC’s broad mandate to promote and safeguard competition and its specific authority to “gather and compile information concerning, and to investigate” firms whose business “affects commerce,”14 it does not need additional legislative authority to begin addressing this problem. Indeed, we believe that the FTC itself partially created the problem Americans now face with its failure to use its authority to block Facebook’s acquisition of Instagram and WhatsApp.
We believe the FTC should move swiftly. Facebook has concentrated a capacity to manipulate what individual Americans see and read. Ongoing revelations about the ability of foreign actors to exploit this Facebook bottleneck to foment social division and undermine democratic processes here in America means it is of critical importance that the government move now to restrain and reduce Facebook’s power.
With sincere regards,
The Open Markets Institute
Barry C. Lynn, Executive Director
Zephyr Teachout, Chair
Lina M. Khan, Director of Legal Policy
Phil Longman, Policy Director
Matthew Stoller, Fellow
Kevin Carty, Policy Analyst
1 Jonathan Taplin, “Is it Time to Break Up Google?” The New York Times, April 22, 2017, https://www.nytimes.com/2017/04/22/opinion/sunday/is-it-time-to-break-up-google.html?_r=0
2 Shannon Greenwood, Andrew Perrin, and Maeve Duggan, “Social Media Update 2016,” Pew Research Center, November 11, 2016, http://www.pewinternet.org/2016/11/11/social-media-update-2016/
3 Robinson Meyer, “Facebook is America’s Favorite Media Product,” The Atlantic, November 11, 2016, https://www.theatlantic.com/technology/archive/2016/11/facebook-americas-favorite-media-product/507452/
4 Elisa Shearer and Jeffrey Gottfried, “News Use Across Social Media Platforms 2017,” Pew Research Center, September 7, 2017, http://www.journalism.org/2017/09/07/news-use-across-social-media-platforms-2017/
5 Jason Kint, “Google and Facebook devour the ad and data pie,” Digital Content Next, June 16, 2016, https://digitalcontentnext.org/blog/2016/06/16/google-and-facebook-devour-the-ad-and-data-pie-scraps-for-everyone-else/
6Matt Stoller, “The Return of Monopoly,” New Republic, July 13, 2017, https://newrepublic.com/article/143595/return-monopoly-amazon-rise-business-tycoon-white-house-democrats-return-party-trust-busting-roots
7 “The Top 20 Valuable Facebook Statistics,” Zephoria, last modified October 2017, https://zephoria.com/top-15-valuable-facebook-statistics/
8 “Facebook Users in the World,” Internet World Stats, last modified Septmber 23, 2017, http://www.internetworldstats.com/facebook.htm
9 Maurice Stucke and Allen Grunes, Big Data and Competition Policy, (New York, Oxford University Press, August 2, 2016)
10 Elizabeth Dwoskin, “Facebook’s willingness to copy rivals’ apps seen as hurting innovation,” The Washington Post, August 10, 2017, https://www.washingtonpost.com/business/economy/facebooks-willingness-to-copy-rivals-apps-seen-as-hurting-innovation/2017/08/10/ea7188ea-7df6-11e7-a669-b400c5c7e1cc_story.html
11 Kurt Wagner, “Facebook copied Snapchat a fourth time, and now all its apps look the same,” Recode, May 28, 2017, https://www.recode.net/2017/3/28/15079774/facebook-stories-snapchat-instagram-copy
12 Betsy Morris and Deepa Seetharaman, “The New Copycats: How Facebook Squashes Competition From Startups,” The Wall Street Journal, August 9, 2017, https://www.wsj.com/articles/the-new-copycats-how-facebook-squashes-competition-from-startups-1502293444
13 For a more extensive version of this argument, see: Ben Thompson, “Why Facebook Shouldn’t Be Allowed to Buy TBH,” Stratechery, October 23, 2017, https://stratechery.com/2017/why-facebook-shouldnt-be-allowed-to-buy-tbh/
14 The Federal Trade Commission Act, 15 U.S.C. ss 41-46, 47-58, (1914) gives the FTC broad investigatory powers to promote fair trade practices. Under 15 U.S.C. s 46(a), it has explicit authority “To gather and compileinformation concerning, and to investigate from time to time the organization, business, conduct, practices, and management of any person . . . engaged in or whose business affects commerce.” To facilitate such investigations, 15 U.S.C. s 49 empowers the F.T.C. “to require by subpoena the attendance and testimony of witnesses and the production of all documentary evidence relating to any matter under investigation.”