Inside Facebook, a picture of market dominance
Documents collected by whistleblower Frances Haugen could give the company 'a lot to regret' in its fights to prove it's not a monopoly.
Facebook likes to portray itself as a social media giant under siege — locked in fierce competition with rivals like YouTube, TikTok and Snapchat, and far from the all-powerful goliath that government antitrust enforcers portray.
But internal documents show that the company knows it dominates the arenas it considers central to its fortunes.
Previously unpublished reports and presentations collected by Facebook whistleblower Frances Haugen show in granular detail how the world’s largest social network views its power in the market, at a moment when it faces growing pressure from governments in the U.S., Europe and elsewhere. The documents portray Facebook employees touting its dominance in their internal presentations — contradicting the company’s own public assertions and providing potential fuel for antitrust authorities and lawmakers scrutinizing the social network’s sway over the market.
The internal metrics show that 78 percent of American adults and nearly all U.S. teenagers use the company’s services — and that while competitors like TikTok and Snap have made inroads with 13- to 17-year-olds, they lag behind Facebook and its photo app Instagram on core values like sharing and community.
“We do not have the number-one product for all use cases in all markets,” the employees wrote in one newly obtained presentation from 2018, which said “Facebook-the-company” was doing “okay” but not yet “great” with teens worldwide. “But we do have one of the top social products — with growing market share — almost everywhere.”
Facebook’s goal, employees said in a 2021 presentation, is to be a “super app” that consumers use for everything from sharing life moments with friends and building community to reading the news and watching entertaining videos.
The records are among a pile of disclosures that Haugen’s legal counsel has made to the Securities and Exchange Commission and provided in redacted form to Congress. A consortium of news organizations, including POLITICO, has obtained the redacted versions of hundreds of documents.
Haugen’s disclosures, along with her role in a series of Wall Street Journal investigative articles and her appearances in a recent “60 Minutes” interview and Senate hearing, have set off Facebook’s most serious political crisis in years, while potentially adding momentum to efforts in Congress to toughen antitrust enforcement against U.S.-based tech giants.
The disclosures related to Facebook’s competitive landscape also could aid the antitrust lawsuit that the Federal Trade Commission launched against the company last year, which seeks to force it to split off Instagram and the messaging app WhatsApp. The FTC has struggled in court to define key elements of the case, including what a social network is and how Facebook dominates that market. The new documents could help the agency fill in those blanks.
Facebook’s public filings to the SEC offer less detail on its users than its internal documents provide, including data broken down by age groups. Facebook also does not publicly provide data broken down for WhatsApp and Instagram — but these documents do.
“This is very, very strong support for the core story underneath” the FTC’s case, said a former agency staffer who reviewed the documents for POLITICO and spoke on condition of anonymity to avoid influencing the agency’s litigation. “There’s a lot to regret in these documents if you are Facebook.”
But in court papers filed this month, the company accused the FTC of cherry-picking data to portray Facebook as a monopoly abusing its power. The government’s claims, Facebook’s lawyers wrote, are “a litigation-driven fiction at odds with the commercial reality of intense competition with surging rivals like TikTok.”
And the documents Haugen provided only support Facebook’s argument, company spokesperson Christopher Sgro said in an interview Friday.
“Far from supporting the government’s case, the documents presented to Facebook firmly reinforce what Facebook has always said: We compete with a broad range of services for people’s time and attention, including apps that offer social, community, video, news and messaging features,” Sgro told POLITICO. “Consumers freely switch among these features — both within Facebook and outside it — and the FTC’s artificially narrow market definition ignores this obvious reality.”
Facebook’s users are ‘hard to lose’
An estimated 162 million U.S. adults over age 30 use the social network each month, or 78 percent of that population, according to a March 2021 presentation created for Facebook Chief Product Officer Chris Cox. Just about all 18- to 29-year-olds in the U.S. also use Facebook, they said.
All told, Facebook has 174 million daily active users in the U.S., according to the internal data. By comparison, Google-owned YouTube has 122 million, while Snapchat has 87.3 million and TikTok has 50 million, according to publicly available estimates. Worldwide, Facebook has more than 2.7 billion users.
While fewer U.S. teens use Facebook’s main social network, nearly all of them use Instagram; the company estimated that 22 million American teens use the service. Instagram also has reached that same high rate of usage with the under-35 crowd in France, Great Britain and Australia.
Once users sign up, they rarely leave, another presentation found.
“Social apps often stop growing but rarely shrink,” the research concluded based on data from nearly a dozen apps including Facebook, Twitter, Snap, South Korea’s Kakao and Japan’s LINE messaging app. “Once you get a user on your app, it’s hard to lose them.”
Facebook’s enormous reach is central to the FTC’s suit, which alleges that Facebook holds a monopoly on “personal social networking services” — online services with a joint social space to maintain relationships and share experiences with friends, family and acquaintances.
Facebook and Instagram are “the digital equivalent of a town square,” the FTC quoted CEO Mark Zuckerberg as saying in a public Facebook post, while a messaging service like WhatsApp is “the digital equivalent of [a] living room.” The suit accused Facebook of engaging in “buy or bury” strategy for crushing the competition, citing among deals its $1 billion purchase of Instagram in 2012.
But the case hit a surprise setback in June, when a federal judge threw out the suit on the grounds that the FTC hadn’t done enough to explain how it concluded that Facebook has a monopoly.
Social networking “services are free to use, and the exact metes and bounds of what even constitutes [social networking] — i.e., which features of a company’s mobile app or website are included in that definition and which are excluded — are hardly crystal clear,” U.S. District Judge James Boasberg said in his June opinion.
For example, he asked, when an Instagram user watches a video, is that time spent on social networking?
In August, the agency filed a new version of the suit, estimating that Facebook controls 80 percent of the market when measured by the time users spend on its various apps, along with data on how many people use Facebook or its services daily and monthly. The judge has yet to rule on whether the new complaint passes muster.
Such nitpicking about markets is important in monopolization suits because the government must explicitly define what services or products it thinks a company dominates, said Vanderbilt Law School professor Rebecca Allensworth, who specializes in the intersection of tech and antitrust.
Big companies often operate in dozens of markets, some more dominantly than others. But one textbook move by a monopoly is to leverage the power it has in one market to make headway in another, Allensworth said. That’s part of what the FTC alleges Facebook has done: Used its dominance in the social networking realm to advance into video and messaging.
Facebook, which has asked Boasberg to throw out the FTC’s newest case, says the agency still has failed to provide the data the judge demanded.
For example, the company’s lawyers wrote in a court filing, the FTC offered no information on how much of the time that people spend on Facebook is devoted to social networking versus other activities. And while the numbers the agency proffers might seem high, individuals use more than one service, they said, mentioning YouTube, TikTok, LinkedIn and Twitter as rivals.
Where’s the competition?
Facebook often publicly cites the existence of other popular apps as proof that it isn’t a monopoly. Zuckerberg told Congress last year that the company faces “significant competition.”
“The most popular messaging service in the U.S. is iMessage,” Zuckerberg said, referring to Apple’s messaging service. “The fastest-growing app is TikTok. The most popular app for video is YouTube.”
All those statements are true. But when Facebook surveyed users last year on which app they rank as the best for various activities, it got a more precise picture of the niches it rules.
Across age groups, users ranked Facebook or Instagram as the best for things like sharing photos or video, discovering others with common interests and connecting with family, companies or celebrities. “Instagram excels among teens and young adults, leading the competition in several areas,” the presentation said.
The only areas where other apps surpass Instagram and Facebook were messaging and entertainment, the survey found. Teens and young adults were more likely to use regular texts (30 percent) or Snapchat (24 percent) for messages than either Instagram or Facebook Messenger (14 percent each), another survey found. All ages said they were more likely to watch videos on YouTube or TikTok than on Facebook and Instagram.
Those surveys are important for the FTC’s case, the former official said, because it demonstrates that Facebook knows it offers various services and dominates on only some of them.
“Consuming content created by others — the kind of thing you go to YouTube and Spotify for — is very different from the personal social sharing that you do with friends and family,” the person said. “When Facebook says, ‘But we compete with YouTube,’ they are not wrong, but it’s not really responsive. Of course Facebook is not a monopolist in everything it supplies.
“The central theme of the materials is that Facebook understands the competitive landscapes are different from one market to another,” the person added, “and the key to its power is the bundle of personal social networking services where its monopoly power is clear.”
Individuals familiar with Facebook’s legal arguments, however, argued that the documents on teens’ declining usage of Facebook’s main platform could weigh in the company’s favor. Because teens are more likely to use multiple services, Facebook needs to compete with the likes of YouTube, Snapchat and TikTok for their time and attention, the person said.
On the other hand, the documents also show that not all the services Facebook offers are necessarily central to its mission.
That’s true of the market for entertainment, said the March 2021 presentation, which noted that YouTube is particularly popular among teens and adults looking for that type of content.
“If we think of ourselves as being in the same consumption market as YT [YouTube], then they are unquestionably winning that market in almost every country” the 2018 presentation said. “They set a high bar for success (note that we usually do not think of ourselves as being in the same market).”
Still, some warning signs for Facebook
Several of Facebook’s reports home in on the teen and young adult market because advertisers often target those age groups for campaigns. Employees also said in the documents that they hope many teens who use Instagram will “age up to Facebook” and help maintain that platform, an area of focus for Cox, Facebook’s chief product officer.
Young adults who have grown up using social media aren’t attracted to Facebook’s “super app strategy” and tend to “use single apps for specific, strategic purposes,” researchers said in a May 2021 presentation exploring why 18- to 29-year-olds in the U.S. use Facebook less than other older Americans.
Some documents include some red flags for Facebook’s tendency to copy rivals’ successes.
Many of the internal Instagram presentations have focused on the dangers TikTok poses, particularly with the teen demographic. In August 2020, the company introduced Instagram Reels to let users create 15-second video clips similar to TikTok videos. The product has had slow pickup. An internal study from April found that one in five Reels creators also had a TikTok account and were recycling those videos.
In another study, Facebook asked teens and young adults to watch either TikTok or Reels for 10 to 15 minutes per day and keep a diary of their reactions. After five days, the users switched to the other platform.
Reels users said they sometimes stopped the sessions early, finding it hard to hit the 10 minutes required because the videos were “stale, boring or repetitive,” while TikTok users self-reported using the app for hours a day beyond the study. The Reels users also found that Facebook’s algorithm didn’t stop showing them content they weren’t interested in, and rarely showed videos made by people of color to white viewers.
At the end of the study, most of the participants preferred TikTok — even the ones who had started off as Reels users.
One of the most damning things revealed by the FTC’s suit, Allensworth said, was how little faith Facebook has in its own product being able to withstand challenges from rivals.
“Zuckerberg doesn’t think he can compete on the merits,” she said. “That’s the fear that comes through in his emails on competition: The need to make sure it doesn’t happen.”This article is part of POLITICO’s premium Tech policy coverage: Pro Technology. Our expert journalism and suite of policy intelligence tools allow you to seamlessly search, track and understand the developments and stakeholders shaping EU Tech policy and driving decisions impacting your industry. Email firstname.lastname@example.org with the code ‘TECH’ for a complimentary trial.