Good News for Facebook Competitors, Bad News for the FTC’s Antitrust Case

Thursday brought some interesting news, none of which were kind to the Federal Trade Commission’s (FTC) antitrust case against Facebook.

First, Facebook’s number of daily users declined for the first time in company history. Part of the reason is that Facebook’s user base is getting older, and younger people prefer other social networks. Facebook dominates the Senate’s mostly over-60 age group, and this visibility bias is likely one reason for the outsized political attention it receives. But younger people pay Facebook less attention, and are instead choosing competitors such as TikTok.

Of course, according to the FTC’s Facebook antitrust complaint, TikTok does not compete with Facebook. This bizarre market definition is one reason why the initial version of the FTC’s complaint was thrown out of court, in a textbook example of the relevant market fallacy. The amended version keeps this narrow market definition. I argued at the time that this was a poor strategic decision by the FTC, and events are already bearing this out.

Second, Snap, Snapchat’s parent company, also a Facebook competitor, posted its first-ever profit. According to the FTC’s market definition of “personal social networking services”, Snapchat is Facebook’s biggest competitor. Snapchat, with roughly 319 million daily users compared to Facebook’s 1.93 billion, is small enough compared to Facebook that FTC attorneys likely figured allowing it into their boutique definition wouldn’t harm their case. When the case was first filed in late 2020, Snapchat had roughly 265 million daily users. But Snapchat gained 13 million users last quarter, while Facebook lost 10 million users. That growth, combined with newfound profitability, pokes another hole in the FTC’s case, even by its own narrow terminology.

FTC Chair Lina Khan has said she is willing to bring cases she does not believe will necessarily win. If she brings enough cases, at least a few should set precedents that can help expand the agency’s authority. Her approach is similar to her neighbor on the political horseshoe, Steve Bannon, whose preferred strategy is to “flood the zone.”

While that strategy may be a net win for the government, it will cost everybody else far more than litigation fees. It will chill innovation at large companies, hinder efficiency improvements that might set off regulatory alarm bells, and leave consumers with inferior products.