Facebook gets sued by the US government — but here’s why it doesn’t matter
Facebook’s days of “move fast and break things” may be over. It’s all about “moving fast but under the radar” now.
Last Wednesday, Facebook was sued by 40 states with the goal of breaking up the company. Here’s what regulators will have to prove:
- Facebook bought WhatsApp and Instagram to kill off competition.
- The social media market is better off without the mergers.
Regulators, who approved of the Instagram acquisition in 2012 and WhatsApp acquisition in 2014, will also have to explain why they let them pass in the first place.
What is Facebook without Instagram?
In the unlikely scenario that Facebook breaks up, here’s what they could lose:
- Growth… Facebook users have plateaued and Instagram has made up the majority of Facebook’s growth — 37% of Facebook’s 2020 sales are expected to come from Instagram.
- Relevance… Teens are opting to use other social media platforms — In a survey by Pew Research, only 51% of 13-17 year olds use Facebook, down from 71% in 2018.
With Facebook’s growth slowing down, they’ve turned to WhatsApp and Instagram for future growth. And now, billions of investment dollars are on the line.
- Facebook has grown WhatsApp into the world’s most popular messaging app (1.5b monthly users) but has failed to make money from the app.
- Facebook has focused on adding shopping features to Instagram as part of its plans to diversify away from ad revenue — which makes up 99% of Facebook’s total sales.
Facebook is pushing forward with plans to monetize WhatsApp, which could pay off big over the next couple of years — as long as these apps remain under Facebook’s ownership…
Stacking in favor of Facebook
Experts are putting the chance of a breakup as slim:
- Difficult to prove… Theoretical “what if” scenarios are hard to prove and it’ll be hard to prove whether the world would have been better off without the mergers.
- Difficult to break up… Even if they can win the case, separating the companies would be extremely difficult.
For investors… Cutting out the noise
Lawmakers made the mistake of approving Facebook’s acquisition of WhatsApp and Instagram but they could prevent future deals from being approved.
This would impact the growth for other large tech companies as well (e.g. Apple, Amazon, Google and Microsoft), which relied on acquisitions to grow.
Facebook’s stock fell 4% after the news but the lawsuits are unlikely to have a major impact on Facebook’s stock in the short-term.