[ad_1]
Don’t go over Facebookit is
full board -0.93%
latest melodrama.
On Wednesday, the Federal Trade Commission and 46 states sued the social media company for anti-competitive practices, seeking to force the world’s largest social network to undo its acquisitions of Instagram and WhatsApp. You could say that Facebook has been in the crosshairs of lawmakers since the controversial 2016 presidential election, and the Cambridge Analytica scandal in 2018 certainly didn’t help matters. After years of threats, investors seemed to view the main event as almost anticlimactic, skeptical that such demands would amount to any material change in the short term. Shares of Facebook fell less than 2%, in line with a selloff that hit big tech companies on Wednesday, falling even more moderately on Thursday.
While all the big tech companies face pressure from regulators, Facebook seems like the easiest target given its structure in three separate apps. But investors’ doubts about the viability of a breakout certainly have merit. Both Facebook acquisitions, for example, were approved by the FTC itself, and proving that competitors and consumers were harmed, as the lawsuits say, will not be easy. If anything, cases are likely to take years to resolve.
But that doesn’t mean Facebook will skate in the meantime. The company, which has made its fortune by spending a lot of money to make a lot of money, needs to try a new strategy to keep growing.
Facebook’s advertising business, which still accounted for nearly 99% of its total revenue in the third quarter, appears to be reaching saturation point. Ads posted on its platform have increased by a quarterly average of nearly 30% year-on-year for at least the past five years. Filling your purchased Instagram with them has contributed to that growth, first in the main feed and more recently in the Stories feature of the app. In some cases, users see more ads than the new content they came to the app for. With other social platforms like Tik Tok, Snapchat, and Pinterest gaining ground, Facebook is already walking a fine line between engaging its users and annoying them.
Facebook has been working to change that, in the hope that its platforms will be destinations for both shopping and sharing. That certainly appears to be the blueprint for WhatsApp, for which Facebook paid a staggering $ 19 billion in 2014, even though the nature of its encrypted communication appears to be directly at odds with advertising. The company’s most recent plans to buy the Kustomer customer service platform suggest that Facebook will seek to monetize WhatsApp through tools for merchants to communicate with Facebook customers.
Suddenly, Facebook’s plans for WhatsApp seem even more critical. Even if the lawsuits against the company do little to change its current structure, it seems clear that growth through acquisitions is no longer an option.
Facebook has historically been a bet that advertisers would keep increasing their share of their budgets. Now you need to persuade your users to open their wallets. Achieving that change under the government microscope will be difficult to say the least.
New York State Attorney General Letitia James described a broad antitrust lawsuit against Facebook by the Federal Trade Commission and a bipartisan group of 46 state attorneys general, targeting the company’s tactics against competitors. Photo: Saul Loeb / AFP via Getty Images
Write to Laura Forman at [email protected]
Copyright © 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8
