The Facebook question

Breaking it up is likely to spur competition

Should social media giant Facebook (FB) be broken up into multiple companies? One of its co-founders, Chris Hughes, has said it should. He contends that this would not only foster competition but also give social media users a better chance at retaining privacy. The rationale behind the argument is interesting. Facebook is dominant in three social media spaces; it is very profitable and highly valued. The platform itself has 2.5 billion monthly users, most of whom also use FB Messenger service. Its subsidiaries, WhatsApp and Instagram, have around 1.5 billion users each. FB has used its money power to acquire potential rivals, as was the case with WhatsApp and Instagram. It has also leveraged its user-base to launch copycat offers that smothered challenges from potential rivals such as Snapchat and Twitter’s Vine feature. This has stifled investment in social media. As of now, a breach of privacy in FB would not necessarily expose a user’s WhatsApp number or Instagram account. But FB is said to be considering an integration where users could seamlessly run FB, Instagram and messenger services from a single account. This would break down silos between the separate services and, thus, put more data at risk in breaches.

Facebook has survived multiple scandals involving data breaches and fake news, especially for advancing political agenda in several countries. The network also faces a fine of up to $5 billion by America’s Federal Trade Commission for its poor privacy practices. However, FB is big enough to pay up and shrug. Moreover, Chief Executive Officer Mark Zuckerberg controls 60 per cent of voting stock, which gives him absolute powers in setting the direction on FB’s algorithms. And since FB is also the biggest global platform for aggregated news, this level of media control concentrated in one man’s hands is unprecedented. Although most users know, and many have misgivings about privacy issues, there are no alternatives due to the monopolistic dominance. Now, suppose FB was broken up into several different companies, and Instagram and WhatsApp were spun off again as separate entities. It’s likely that this would foster competition. There would be investment in creating competing social networks. In order to differentiate themselves, these new networks would create models and every player would be more vigilant about privacy. Users would get a better shot at using alternatives, which suited their personal privacy thresholds. There would be more innovation in the wider social media space as smaller companies would not be afraid of being stifled, or getting bought out. 

Breaking up companies that dominate highly concentrated markets, or even threatening to break up such companies, can lead to more innovation and competition. This has also created more shareholder value, even for the targeted companies. Standard Oil and AT&T are two often-cited examples of breakups that led to better practices in energy and telecom, as well as more options for users, and higher shareholder returns. Threatening to break up Microsoft, and earlier IBM, sparked innovation in IT. FB does present a unique case due to the added concerns of privacy and its unprecedented grip on news dissemination. But policymakers should certainly consider this option.