Instagram is crucial for Meta, and it is expected to contribute about 50% of its sales in the USA this year. If separated, Meta's advertising business will suffer a significant blow.
Meta faces a life-and-death decision in the antitrust review, with the fate of Instagram and WhatsApp as the focus.
On April 14th, Eastern Time, it was reported that the antitrust lawsuit between Meta and the Federal Trade Commission (FTC) officially went to court. This protracted legal battle will determine whether the tech giant can retain its most important Assets. The FTC alleges that Meta holds an illegal monopoly in the social media sector and demands the divestment of its acquisitions of Instagram and WhatsApp.
The FTC lawsuit against Meta began during Trump's first term in office, filed in late 2020 but was dismissed by Judge Boasberg who deemed the FTC's evidence insufficient. During the Biden administration, the FTC submitted an amended complaint, which Boasberg determined addressed the deficiencies, bringing the case back on track. Current Republican FTC Chairman Ferguson stated that he would push the case to a ruling.
If Meta is forced to divest Instagram and WhatsApp, its advertising business would suffer a devastating blow, placing investors at great risk. Notably, Instagram is expected to contribute about 50% of Meta's sales in the USA this year.
Meta CEO Mark Zuckerberg will attend the Meta trial as the "first witness." Reports indicate that in recent weeks, Zuckerberg has been lobbying Trump to reach a settlement to avoid the trial, but no agreement has been reached so far. Meta's stock price fell today, dropping 2.22% by the close.
Market definition has become the core of the dispute: is TikTok a competitor or a differentiated service?
The case will largely depend on the FTC's determination of whether Facebook, Instagram, and WhatsApp dominate the 'personal social network' market. FTC Chair Ferguson stated that we believe Meta is certainly a monopoly.
The FTC believes that consumers primarily use these applications to stay connected with friends and family. According to the FTC's definition, Snap falls within this market, but TikTok, YouTube, X, and Pinterest do not, as they are entertainment or 'shared interest' applications, differing from the purpose of personal social networks.
The FTC is expected to heavily cite Zuckerberg's communication records from those years to argue against the anti-competitive nature of the acquisition. FTC lawyer Daniel Matheson stated in the opening remarks of the antitrust case: 'Meta was preparing to acquire Snap for $6 billion in 2013.' Matheson directly criticized Meta's acquisition strategy:
They believe that it is easier to buy competitors than to compete against them.
Matheson highlighted an email Zuckerberg sent to his colleagues in 2012, in which he stated that Instagram could be 'very disruptive' to Facebook. Zuckerberg wrote at the time: 'One way to look at this is that we are actually buying time.'
Meta insists that the core premise of the FTC case is flawed, namely that Instagram and WhatsApp were destined to succeed and compete with Facebook. In fact, Meta lawyer Hansen argued in the opening statements that Zuckerberg took risks when acquiring these services and then elevated them to new heights:
From any perspective, consumers are the biggest winners.
Instagram is crucial to Meta: a separation would cause significant damage to the Business.
According to research company eMarketer, advertising on Instagram is expected to account for about 50% of Meta's sales in the USA this year. eMarketer Chief Analyst Jasmine Enberg stated:
Losing Instagram would be a huge blow to Meta's Business.
Enberg pointed out that Instagram continues to grow among young users compared to Facebook, where the number of users aged 18-24 is expected to decline by 2% this year. "In many ways, Meta needs Instagram to maintain user engagement and continue attracting advertisers," Enberg added.
The report indicates that this case also illustrates the difficulty of challenging technology giants. Facebook, Instagram, and WhatsApp are all free to use, which means Meta has never raised prices, the most evident way monopolists exert power.
The USA Federal Trade Commission claims that Meta has raised the "quality-adjusted price"—this refers to Meta using market power to do things consumers dislike, such as increasing the number of ads displayed on the screen or not providing strong privacy protection.
This trial, expected to last about 8 weeks, will be presided over by Judge James Boasberg. If Boasberg finds that Meta violated antitrust laws, he will subsequently rule on remedies such as divestiture to restore market competition.
For investors, the outcome of this trial will directly determine the sustainability of Meta's future Business model and the reasonableness of its market valuation.
Editor/Jeffy
