Breaking Down Monopolies

In the last couple of months, there’s been a lot of chatter about Facebook, because the Federal Trade Commission or the United States, along with 40 other states, sued Facebook because it appeared as if Facebook was illegally trying to kill its competition. Now while most people might think this to be insignificant, you need to keep an eye on these tech giants like Google, Facebook and Amazon, because even small changes to these organizations can transform an entire industry from top to bottom, and small changes as far as the antitrust case is concerned, can break down Facebook into three different parts. There is a possibility that Facebook might be even forced to sell Instagram and WhatsApp, so what we’re looking at is not just an ordinary case, but a case with what it can determine how the social media revolution is going to go ahead, in the next 10 to 20 years, which will eventually go on to dictate terms and how businesses operate all across the world.

So, now the question is what exactly is this case all about. The story goes like this— the Federal Trade Commission and 40 Other states have a problem with Facebook because they believe Facebook is almost on the verge of becoming a monopoly, which means what Facebook has become so powerful that it has become the ultimate player, where they can control the market. So now the question is what exactly is wrong with being a monopoly, I mean, why can’t you just have one company with one amazing product with no competition whatsoever. Well, let’s try to understand that using a very simple example as to why exactly is a monopoly bad for the business ecosystem.

So let’s take the case of Jio, let’s say Jio is an amazing company that provides amazing Internet, and we all know that when Jio came into the market, a lot of its competitors had a very tough time.

And if you take the case of Vodafone and Idea, even both of them put together, when it comes to 2015 that is just before Jio came in, they were making a profit of more than 3000 crores. But then if you look at the statistics of Vodafone idea in 2018, they incurred a loss of more than 4000 crores, which means we have gone from profit of 3000 crores to loss of 4000 crores, which is a change of 7000 crores in less than two years. Vodafone and idea were considered to be extremely profitable companies and today they are crippling with losses. On the other hand, even a government company is now on the verge of shutting down, and if this trend continues for a very long time, Jio could be the only player in the market, with no or very little competition and will become a monopoly.

Now here’s where the trouble will start. So today if you’re paying x rupees for 30 days of data, by next month Reliance might ask you to pay 2x rupees for the same data, and by next year, even if the price shoots up to 5x, you will still have to pay it. Why? because:

  1. Internet today is a necessity and your life cannot run without internet
  2. You’ve got no other option but to go for Jio because it would be the only player in the market.

So this is how once a company becomes a monopoly, it can literally dictate terms in the market, eventually exploit its customers, and make a ton of money.

Now let’s try to understand how Facebook is becoming a monopoly in the social media space, and what exactly is the problem that the Federal Trade Commission has with Facebook. Now as far as my research is concerned, Facebook kills its competition in two specific ways:

  1. The first method that Facebook uses is - acquisition. Facebook directly buys off its competition — Now most of us don’t even have the Facebook app on our phones. Facebook spotted that Instagram was growing in popularity among youngsters and Facebook was slowly and steadily becoming irrelevant. They accepted that they couldn’t compete with Instagram, so they bought Instagram, eventually to eliminate the threat and turn that threat into an asset to make money out of it, and WhatsApp also has a similar story.
  2. The second method that Facebook uses is - simply copying the unique features of a particular application. Now, most of you might not know this, but Facebook and Snapchat were involved in a very big and popular business war. When Facebook tried to acquire Snapchat for $3 billion, Snapchat refused to sell. Later on, Facebook launched another application which was a replica of Snapchat, eventually, even that failed. After that Facebook incorporated two of the most unique features of Snapchat on Instagram, eventually stifling its competition to an extent that people are even questioning the relevance of Snapchat with the presence of Instagram stories, and the vanish which has recently been launched on Instagram. Snapchat, saw a decline in growth by 82% just one year after the launch of Instagram stories, so in this case, you can see how Facebook copies its competition, eventually killing it if it fails to acquire it.

Now the irony that needs to be noted is that the very FTC that is suing Facebook right now is the same body that approved the acquisition of Instagram and WhatsApp by Facebook, so why are they questioning it eight years later. Well, I don’t know.

Facebook has been known to strangle the growth of its competitors, which points towards the existence of the Facebook monopoly. Now I know what you guys are thinking, you might be thinking why can’t Mark Zuckerberg - the billionaire, save himself by hiring the best attorney in the world. This is where the fun part comes into play — as much as America is the land of economic powerhouses, it also has a history of breaking down monopolies as soon as the monopolies start abusing their power. The same thing happened to three of the most prestigious companies in American history — Standard Oil, American Tobacco Company, AT&T.

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