Log in
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Dynamic quotes 

MarketScreener Homepage  >  Equities  >  Nasdaq  >  Facebook Inc    FB


SummaryMost relevantAll NewsPress ReleasesOfficial PublicationsSector newsMarketScreener StrategiesAnalyst Recommendations

Too Complex to Break Up' Is the New 'Too Big to Fail'

10/09/2020 | 10:14pm EST

By Christopher Mims

Lawmakers this week proposed breaking up Big Tech by reviving aggressive, turn-of-the-last-century-style antitrust laws and enforcement measures. Amazon, Facebook, Google and Apple, they argued, all have developed monopoly power that they use to stamp out competition and stifle innovation.

Days before, Facebook Inc. produced its own document contending that breaking it up would be a "nonstarter" for a number of reasons, including that the company's constituent parts are already too complicated and interconnected for any of them -- Instagram, WhatsApp, its ad business -- to be spun off as individual companies or walled off as separate divisions.

"After many years of hard and costly work, Instagram and WhatsApp are now integrated into the same bespoke infrastructure that Facebook built from the ground up," the company says in its report.

The House Antitrust Subcommittee report released on Tuesday concedes Facebook's argument that a breakup of any Big Tech company is unlikely unless Congress passes new laws. For concerned lawmakers, this only heightens the urgency to figure out how to deal with Silicon Valley's clout.

For those who favor curbs on these companies, one question looms. These four companies already possess unprecedented market values and dominant positions in industries ranging from digital advertising and app distribution to online retail and mobile computing. If they are already so complex that it is prohibitively difficult to untangle them, what happens if they continue to grow unchecked for another decade? Collectively, these companies plan to expand into health care, cryptocurrency, brain computing, space-based telecommunications and countless other areas.

In the 2008-09 financial crisis, some argued that any bank too big to fail is, by extension, too big to be allowed to exist. As the tech giants become ever broader in the businesses they enter, and deeper in their vertical integration, many economists and activists are coming to a similar conclusion: "Too complex to break up" is, like "too big to fail," an argument in favor of doing precisely what these companies want to avoid.

There certainly are complications. When Facebook sought to increase user engagement on Instagram, one of the company's first steps was to port over the same algorithms that power the Facebook News Feed. In fact, Facebook says it spent the past year further integrating WhatsApp and Instagram, even rebranding them "from Facebook." These certainly feel like defensive measures against antitrust attempts to break up the company.

Maëlle Gavet -- former chief executive of Russia's largest e-commerce site, former vice president of operations at the Priceline Group and author of a book about Big Tech's current problems and how to fix them -- says that from a technical perspective, splitting off Instagram and WhatsApp would be labor-intensive but doable. As newly independent companies, they would have to rebuild their messaging and advertising systems, and also move to a different cloud-service provider, which would degrade user experience in the short term. But such a "demerger" could be completed in a year or two, she estimates.

While Alphabet Inc.'s Google hasn't voiced its own "too-complex" defense, it has also deeply integrated its past acquisitions, from ad giant DoubleClick and streaming colossus YouTube to the world's most popular mobile operating system, Android.

Splitting off any of these would be just as complicated, and could result in the same short-term problems, says Ms. Gavet. "It does not mean we should not do it," she says. "It just means we should be ready for the pain it will cause" both users and advertisers.

"Americans simply don't want Congress to break Google's products or harm the free services they use every day," the company wrote in response to the House report. "The goal of antitrust law is to protect consumers, not help commercial rivals."

With Apple Inc., the "fault lines" -- as the House report calls the seams between various potentially separable businesses -- are blurrier. Much of the company's expansion has come from growth fueled by early-stage technology acquisitions. Nevertheless, the House report was critical of Apple's habit of operating a dominant retail platform and simultaneously competing with its vendors.

In the App Store, Apple has prioritized the company's own apps in search. (Apple says its own tests do not support this assertion.) Apple also takes a 30% fee from transactions conducted within the third-party apps it distributes, leading many companies to attempt to work around Apple's rules while asserting the company has become a monopolistic gatekeeper to hundreds of millions of consumers.

Apple said in a written statement: "Our company does not have a dominant market share in any category where we do business... Last year in the United States alone, the App Store facilitated $138 billion in commerce with over 85% of that amount accruing solely to third-party developers. Apple's commission rates are firmly in the mainstream of those charged by other app stores and gaming marketplaces."

Thomas Philippon, an economist and professor of finance at New York University's Stern School of Business who specializes in monopolies and regulation, cautions against treating Big Tech as a monolith. Even if some of the same principles can be applied to all of these companies -- the House report proposes, for example, making it a universal rule that companies can't promote their own goods on dominant platforms they own -- what that means for each will necessarily vary. Splitting the App Store from Apple would be absurd, says Ms. Gavet, but it's not clear what other regulation could curb its power.

For Amazon.com Inc., one issue is the company's marketplace, on which some of the company's own employees have said Amazon has used data on sales from vendors to launch competing products. (Amazon sent a letter to the House subcommittee on Oct. 4 saying that an internal investigation found no instances of its employees doing this.) Amazon has also prioritized its own products in its search engine.

Amazon might require entirely new thinking about what consumer harm means, says Ms. Gavet. While Amazon doesn't have a dominant market share in any one area other than e-commerce, its offerings are so broad, from Alexa, Ring and Eero to Whole Foods, Amazon Logistics, Amazon Web Services and its enormously popular Prime membership services, that its ability to gather data on Americans has become comprehensive. "We intuitively feel this is a problem," she adds, "but how do you manage a company like that from an antitrust perspective?"

In a lengthy rebuttal to the House report, Amazon called its suggestions "fringe notions" born of "regulatory spitballing." The company went on to highlight familiar talking points, such as that Amazon commands less than 1% of global retail and 4% of retail in the U.S., numbers that can be derived only from very generous definitions of the markets in which Amazon competes. The company concluded that suggestions in the report would harm both sellers and consumers, leading to higher prices and less selection.

The argument that Facebook or any other tech giant is too complex to break up is as old as the first antitrust case, says Dr. Philippon. AT&T Inc. made the same argument many times when the government sought to break it up in the 1970s, he adds.

Regardless, opponents of Big Tech might have to wait for an act of Congress for any of these scenarios to play out. The next-best check on their power would be to approach the companies' future acquisitions warily, says Denise Hearn, a senior fellow at the American Economic Liberties Project, a nonprofit opposed to concentrated corporate power.

"I wish regulators would be better about anticipating potential competitive threats," she adds. In evaluating Facebook's willingness to pay $19 billion for WhatsApp in 2014 -- at the time the largest-ever acquisition of a venture-backed company -- she argues regulators should have asked why, exactly, Facebook was so eager to pay more than 10 times what WhatsApp had been valued at only a year before.

One answer has become evident since Facebook bought WhatsApp and used it to pilot mobile banking products in India, where the service has 400 million users. Facebook apparently viewed WhatsApp as a blank slate with which the company could expand laterally into markets completely unrelated to its core business, and then, per its usual playbook, find ways to dominate that industry. This is the same company that is also still planning to launch its own currency, expand its lead in virtual reality, and create a brain-computer interface.

The House report says that in the future, any acquisition by Big Tech should be viewed, by default, as an attempt to crush competition or gain unfair advantage. The burden to prove otherwise would then fall to the companies themselves.

This flies in the face of 50 years of antitrust enforcement. Agencies haven't blocked a single one of more than 500 acquisitions made by Apple, Amazon, Facebook and Google since 1998, notes the House report. Since the 1970s, a steady erosion of antitrust laws and enforcement has taken place in the U.S. in the name of increasing economic dynamism, says Ms. Hearn.

From the perspective of startups, making it more difficult to become acquired could have a chilling effect on their formation, says Iain Murray, a senior fellow at the Competitive Enterprise Institute, a libertarian think tank. "Saying the only route to cashing in is to lead your company to IPO will destroy dreams and lead to a less innovative culture," he adds.

(MORE TO FOLLOW) Dow Jones Newswires

10-10-20 0014ET

Stocks mentioned in the article
ChangeLast1st jan.
ALPHABET INC. 2.10% 1763.9 Delayed Quote.31.69%
AMAZON.COM, INC. 0.63% 3118.06 Delayed Quote.68.74%
FACEBOOK INC 3.16% 276.92 Delayed Quote.34.92%
All news about FACEBOOK INC
04:58pYouTube bans One America News Network from posting new videos for a week
01:16pNEWS HIGHLIGHTS : Top Global Markets News of the Day
12:46pU.S. senators urge Facebook, Twitter for tighter checks before Georgia runoff..
11:16aNEWS HIGHLIGHTS : Top Global Markets News of the Day
11:12aFACEBOOK : Says Ads For Giving Tuesday Are OK, So Long As They Aren't About Soci..
09:16aNEWS HIGHLIGHTS : Top Global Markets News of the Day
07:16aNEWS HIGHLIGHTS : Top Global Markets News of the Day
05:45aStock-Market Titans Amazon, Google and Facebook Are Also Driving Commercial R..
05:24aTech giants ask Malaysia PM to reinstate foreign ship cable waiver
11/23Stocks rise on cyclical boost but megacaps curb gains
More news
Financials (USD)
Sales 2020 83 587 M - -
Net income 2020 26 870 M - -
Net cash 2020 63 906 M - -
P/E ratio 2020 29,7x
Yield 2020 -
Capitalization 789 B 789 B -
EV / Sales 2020 8,67x
EV / Sales 2021 6,80x
Nbr of Employees 56 653
Free-Float 83,8%
Duration : Period :
Facebook Inc Technical Analysis Chart | FB | US30303M1027 | MarketScreener
Technical analysis trends FACEBOOK INC
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus BUY
Number of Analysts 50
Average target price 315,73 $
Last Close Price 276,92 $
Spread / Highest target 35,4%
Spread / Average Target 14,0%
Spread / Lowest Target -56,7%
EPS Revisions
Mark Elliot Zuckerberg Chairman & Chief Executive Officer
Sheryl Kara Sandberg Chief Operating Officer & Director
David M. Wehner Chief Financial Officer
Michael Todd Schroepfer Chief Technology Officer
Atish Banerjea Chief Information Officer
Sector and Competitors
1st jan.Capitalization (M$)
FACEBOOK INC34.92%764 567
MATCH GROUP, INC.68.35%36 767
TWITTER40.22%35 447
NEW WORK SE-17.64%1 597