Meta (META.US) antitrust case opens: “profit engine” Instagram faces risk of dismemberment

The Zhitong Finance App learned that Facebook's parent company Meta (META.US) will face an antitrust trial in Washington on Monday. If the US Federal Trade Commission FTC wins the lawsuit, the FTC is trying to force Meta to restructure or sell part of its business, including Instagram and WhatsApp. The lawsuit was filed during President Trump's first term in 2020.

The company is accused of spending billions of dollars to acquire Instagram and WhatsApp, thereby illegally monopolizing social media. US antitrust agencies are seeking to reverse these two deals. The FTC said the acquisition more than a decade ago was aimed at eliminating an emerging competitor that could threaten Facebook's position as the social media platform of choice for users to connect with friends and family.

Meta Chief Legal Officer Jennifer Newstead said in a blog post on Sunday that the case was weak and was a deterrent to technology investment, and the FTC was trying to spin off a great American company. The case poses a life-or-death threat to Meta, which according to some estimates is that about half of the company's advertising revenue in the US comes from Instagram. The case will also show the market to what extent the new Trump administration will deliver on its promises of support for big tech companies.

Since Trump was elected, Meta has regularly shown him goodwill, abolished content moderation policies that Republicans consider tantamount to censorship, and donated $1 million to Trump's inauguration. Meta CEO Mark Zuckerberg has also visited the White House several times in recent weeks.

FTC spokesman Joe Simonson said, “The FTC is fully prepared for this trial. We are fortunate to have some of the most hardworking and brightest lawyers in the country, who work around the clock.”

Zuckerberg is expected to testify at trial, and he will face questioning over emails. In these emails, he proposed the acquisition of the photo-sharing app Instagram as a way to offset Facebook's potential rivals, and expressed concerns that WhatsApp might grow into a social networking platform.

Meta argued in court documents that the company acquired Instagram in 2012 and WhatsApp in 2014 to benefit users. In the fierce competition between YouTube under Google (GOOGL.US) and iMessage under Apple (AAPL.US), Zuckerberg's past remarks are no longer meaningful.

How users spend their time on social media and whether they think these services are interchangeable will be central to this case. According to court records, Meta will point out that Instagram and Facebook traffic increased during the brief shutdown of TikTok in the US in January of this year, as evidence of competition.

The FTC claims that Meta has a monopoly on platforms for sharing with friends and family, and its main competitors in the US are Snap (SNAP.US)'s Snapchat and MeWe, a small privacy-focused social media app launched in 2016. The FTC believes that platforms where users show content to strangers based on common interests, such as X, TikTok, YouTube, and Reddit (RDDT.US), are not interchangeable.

US District Judge James Boasberg said in a November ruling that although the FTC has sufficient evidence to move forward, the agency “faces a serious question of whether its claims can stand up in a tough trial.” The trial will continue until July. If the FTC wins, it must prove in a second trial that measures such as forcing Meta to sell Instagram or WhatsApp will resume competition.

Losing Instagram could be disastrous for Meta's profits. Although Meta did not release revenue data for specific apps, advertising research firm Emarketer predicted in December last year that Instagram would generate US$37.13 billion in revenue this year, slightly more than half of Meta's advertising revenue in the US. According to Emarketer's data, Instagram also earns more per user than any other social platform, including Facebook.

To date, WhatsApp has contributed only a small portion of Meta's total revenue, but it's the company's biggest app in terms of everyday users and efforts to make money through tools such as chatbots. Zuckerberg said this kind of “business information” service could drive the company's next wave of growth.

This is one of five cases where the FTC and the US Department of Justice accuse large technology companies of maintaining an illegal monopoly. Amazon (AMZN.US) and Apple (AAPL.US) have both been sued, and Google, a subsidiary of Alphabet, is also facing two lawsuits. The content is that the government is trying to force Google to sell its Chrome browsing business.