In a recent interview, Chris Hughes, co-founder and one of the members of “The Facebook” said that it’s time that Facebook’s business ventures are segmented and broken up into multiple fragmented corporations. Hughes statement has come after a series of scandals and events of the data breach and user information leaks that happened at Facebook.
After losing billions in market shares and the same amounts in government fines and court proceedings, Chris might have suggested something that may change the shape of the entire social media and digital marketing industry. Though Chris has his own valid reasons that prove his point and also show a new direction to the ways social media business is currently handled, as well as boost entrepreneurship.
But what if Facebook is already broken up? What if its acquisitions are reversed? How it would affect the business and what could it mean for the consumers? Let’s see what that “alternate reality” may look like.
Facebook’s Current Scenario
Facebook started 15 years ago in a Harvard dorm as a campus-only platform, which then expanded across the United States colleges and then Cambridge and Oxford in the UK. In a few years, Facebook was the leading social media platform in the world, taking down Orkut forever before it could even emerge in front of international audiences. Since then Facebook has turned into a digital advertiser along with a social networking joint, focusing on connecting brands to the people, therefore, rising from its earlier focus which was connecting people to other people. The digital advertising business has made billions for Facebook, thus, making it the sixth-largest company in the world in terms of market capitalization.
Currently, Facebook remains the sole company to run social media platforms across the internet and has a user base of more than a billion members, apart from business conglomerates, small businesses, activist societies, and support groups active on the site..
But what has driven Facebook’s fifteen-year-long run in the market without external hinderance?
Facebook’s Long List of Mergers and Acquisitions
Facebook was initially lucky to get early investments and rise in the market before anyone else can come up with the idea. And with the return on these investments, Facebook has made sure to buy the right competitors before they can even think of competing with it in the real-world market. In the last fifteen years, since it was established, the company has acquired more than 80 entrepreneurial ventures, all of whom were established by their respective founders to excel in a different set of business fields. These fields include artificial intelligence, virtual reality, social networking, image sharing, software development, and digital marketing.
Facebook founder Mark Zuckerberg is a smart man and has a brilliant team of market researchers, who analyze what companies can offer Facebook resources for business development and which one can become a threatening competitor. Thus, Facebook buys them off for resources and manpower, and sanction an operations shut down most of them, thus, wiping the remains off the market floors.
WhatsApp and Instagram: The Acquisitions that Crowned Facebook
Among all the companies Facebook has acquired, it’s Instagram and Whatsapp that have profited the parent company most in terms of market capitalization and revenue. The combined user base of all three platforms have boomed its digital marketing business and has allowed the company to manipulate the industry at its terms and conditions. Added up with Facebook’s Messenger and the main application, the four ventures comprise more than 80% worth of the entire social media platform.
So, if ever a “break-up” happens, these two ventures would play a major role in reshaping the social media business and would have the most impact on the future of Facebook.
How can Facebook Break into Fragments?
Breaking up Facebook is no longer under the authority of members out of Board of Directors, and why they would even want that. Their acquisitions are worth billions and have given them unprecedented authority over the entire social networking business. Moreover, these acquisitions have helped Facebook gained a never-ending monopoly over the networking and digital ad business.
The only way that’s possible is that the Senate and the United States Congress realize the cost of giving Facebook to much power over people’s interests, information, and preferences which are tracked by Facebook via their activities on the platforms owned by the company. It can only be possible if the US authorities find a way to empower competition and end monopoly in the market Facebook has been ruling since the past decade.
So, what if somehow, Facebook is divided?
Facebook, Instagram, and WhatsApp would be Separate Entities
Facebook’s acquisition of Instagram and WhatsApp cost a lot of fortune to the company, however, thee resources and market capitalization Facebook gained in exchange compensated that cost. Till date, out of all the social networking and image sharing platforms, Instagram and WhatsApp are the only ones that are not shut down. So, the separation of Facebook would entirely depend on the separation of these two acquisitions from Facebook and once again making them individual holding, free from Facebook’s operational controls.
But what purpose it would solve?
The Competition would Finally Thrive
Facebook’s acquisition of almost all the major social networking and messaging applications and platforms have removed the competition from the market. Most of them including ConnectU, FriendFeed, and Divvyshot were immediately shut down and their developer teams have been rehired and merged in units of Facebook. This has ensured that Facebook does not face any hefty market competition from any aspiring social networking business. It just bought them off in a considerably good amount of fortune.
But, if Facebook ever loses WhatsApp and Insta, the competition is likely to gain momentum again. Insta and WhatsApp, both were highly popular among the audience and were very well countering Facebook’s social media monopoly. In fact, Facebook’s Messenger would have collapsed against WhatsApp as the instant messenger took over the market. Now Facebook leads in all three categories of networking business, that are, social sharing, image sharing, and instant messaging. In case the US government and Security and Exchange Commission (SEC) ever allow Chris Hughes statement to become reality, Facebook would surely be on the backfoot.
Empowering Entrepreneurship and Innovation
Facebook buys all startups. It does not let any networking business thrive on its own. Given the number of resources Facebook has in its pockets, the deal offered to the startups is more than that the young founders of such ventures expect. Hence, they end up signing the papers allowing Facebook to attach the blue to their names. And in most cases, dump that apparently feasible idea in the garbage bin. This has led to nothing but the end of innovation in the social media business. The only way the world knows social media and social networking is through Facebook and has utilized it per the features Facebook has offered.
The entrepreneurs have been refrained from bringing up new ideas to social networking and the ones that have been only able to thrive by focusing on content sharing in regard to a specific topic. For example, Medium, Hubpages, and Buzznet has attracted millions of users and site visitors but are able to connect with people on the basis of their interest only and have not been able to provide a proper in-person connection between two or more people, or between people and brands.
Other Competitors Would Probably Be Able to Increase Capitalization
It isn’t like Facebook have zero competitors. Twitter, the most famous microblogging site is not only a platform to share content and be updated on real-time world events. The site has an option to get into personal instant messaging and has a combined feature of sharing both content and photos just like Facebook. The only difference is the limit of characters in a single tweet, thus limiting the length of the content that you wish to post.
Similarly, there is Snapchat, a potential rival of Instagram, which runs on a similar format of picture and photo-story sharing, thus allowing people to communicate through real-time picture-sharing. Besides, Reddit and YouTube are some of the finest platforms to engage in genre-specific content and conversations. LinkedIn, on the other hand, has remarkably succeeded in maintaining a professional social networking medium.
But, Facebook owns three companies like that. So, the combined user base Facebook-owned platforms get can never be outmatched by any of these other platforms. But if Facebook loses the user base on the separation of WhatsApp and Instagram, Twitter and others would have a chance to get the divided user base and attract them towards their distinguished platforms. And that may be a key to increased capitalization.
A Reinstated Importance to User Preferences and Terms
The monopoly Facebook has on the networking business, have forced users to make use of these platforms per the terms and user agreement conditions imposed by Facebook. Facebook has constantly used user data and has made money out of it from hundreds of its registered advertisers. But, in case Facebook loses its two main subsidiaries, it would have two competitors who could deliver a better and more privacy-focused networking, sharing, or messaging platform and can prompt Facebook to revise its business model in accordance with the user interests. This way, users would finally be able to choose from the available platforms and stay with the preferable one without getting into a forceful agreement with a single player in the market.
End of Facebook’s Monopoly
Facebook’s monopoly over the networking business has led the industry to come at a halt. None of the platforms in these businesses has been able to explore new charters of the industry. The social networking business has become a source of income for advertisers and has only a little left for people and people’s connectivity. If the separation ever comes off, Facebook would lose this monopoly and the extracted individual ventures would have an opportunity to find new sectors in this business and transform the industry in a whole other manner.
But, a major setback may never let this happen
The Split Isn’t That Easy
The break-up can’t happen overnight. By shutting down most of its acquisitions and their operations, Facebook cut a number of jobs but managed to get most of their employee resources merged into different departments of Facebook. So, if Chris Hughes’ suggested break-up would be big-time chaos and may lead to a series of events that would harm the overall economy of America and the international subsidiaries where Facebook has established its ventures. Moreover, dividing a business into multiple subsidiaries is one thing, but splitting them apart including resources, revenue, and capitalization would require heavy legal ramifications and discussions before the Antitrust Division of the US government could make a final decision.
Is it Ever Possible?
American lawyer and contributor to The New York Times, Tim Wu has claimed that the legal ramifications may be tough, but this split up can be possible, and that it would hardly affect the consumer welfare. Antitrust laws in America are flexible enough to give this thought a discussion as there are litigations to measure anti-competitive effects of business monopoly on the national economy. Moreover, Instagram and WhatsApp are already subunits of Facebook and are a result of the acquisition.
Corporations like Facebook can be split from their subsidiaries if their business policies are to harm the economic growth of the concerned sector or industry. AT&T initial split-up and the recent merger of AT&T and Time Warner are the greatest examples when Antitrust laws took a step in favour of growth and development of the overall sector economy. Thus, Facebook can lose its concentrated power on the networking business if such a thought is requested for motion in the court of law.
Splitting up Facebook would surely be a big deal and this can’t happen overnight. A lot of documentation and after-effects would have to be analyzed. However, if this ever happens, Facebook would be under danger of losing its position in the future, if not immediately after splitting up. The end of the monopoly may also allow the tech industry to grow further, as its growth would not be controlled predominantly by a single corporation anymore. The entire democratic principle is set on the fact that “no one deserves too much power to control someone’s choices”, and that applies to private industries as well. Thus, maybe, Chris Hughes was right and its time that the control of the tech industry and the commandeering of its responsibility is equally divided among the current players of the sector.