Facebook Now Out to Squish Even Newbie Potential Competitors

August 10, 2017
mm

Nothing like strangling babies in their crib.

Trump should go on vacation more often. The Wall Street Journal has had a raft of good stories this week, one of them on how Facebook has redefined what it considers to be a competitive threat to include much smaller and newer companies than did not all that long ago.

This sort of behavior support the allegations made by critics of rising monopoly and oligopoly power in the US. They contend that one of the drivers of a decline in new business formation since 2000 is that there are fewer spaces in the economy where new businesses can find niches free of powerful entrenched incumbents. And that’s before you get to the fact that big tech players have engaged in anti-trust violations that were so egregious, namely collusion among the biggest players to suppress wages of over 100,000 engineers, that the normally toothless Department of Justice roused itself to Do Something. However, because the perps included the biggest names in technology, with Steve Jobs and Eric Schmidt as ringleaders, no one was going to go to jail. By contrast, price fixing in the lysine market in the early 1990s resulted in executives of public companies wearing orange jumpsuits.

Mind you, Facebook isn’t doing anything illegal. the story, focuses on a plucky company called Houseparty that recently got $50 million from venture capitaliss led by Sequoia. Houseparty has developed an app that allows users to share one-minute video clips and chat about them on their smartphones.

Even though this would seem to be a narrow enough business so as to be able to co-exist with Facebook, Facebook thinks otherwise. The fact that Housebook has one million monthly users, a mere 0.1% of Facebook’s 2 billion members, is seen as a threat. From the Journal [note I’ve reordered the excerpts a bit]:

While it’s as easy as ever to start a company, it is getting harder to grow fast enough and big enough to avoid getting either acquired or squashed by one of the behemoths….

Lately, the titans also appear to be imitating smaller rivals more aggressively. In July, a week after the initial public offering of Blue Apron Holdings Inc., an Amazon subsidiary filed to trademark a meal-delivery kit with a tagline that echoed Blue Apron’s offering. Both Google and Facebook have taken aim at features on Snap. Inc.’s Snapchat platform…

For months, Houseparty could see Facebook in the rearview mirror. Last year, Facebook executives approached it for meetings the startup interpreted as exploring an acquisition. Then, two months after Houseparty publicly introduced itself as “the internet’s living room” in November, Facebook’s Messenger app said it would become a “virtual living room.”

Facebook in February launched a study of Houseparty, wooing its teenage users in a post that began: “Hi everyone!! Do you use Houseparty?”…

This fall, Facebook plans to launch an app similar to Houseparty, internally called Bonfire, say people familiar with the project.

One bit of good news is that Facebook has a lousy track record with launching stand-alone apps, but one of the Houseparty founders concedes that if Facebook were to depart from its usual approach and integrate Bonfire into Facebook, it would probably squash Houseparty. The article also makes clear that the VCs would favor a sale to Facebook at a suitably juicy price since that makes for a faster exit. And despite its promising start, its blue-chip backers and it having mastered some recent scaling challenges, Houseparty still faces an uphill battle:

The odds are already stacked against it. The average smartphone user has about 89 apps on a device but uses only seven or eight daily, according to Verto Analytics. Facebook, Apple and Google dominate, commanding about 60% of the time and 80% of the ad dollars spent on mobile, the market-research firm says.

In an interesting departure from what would seem to be Wall Street Journal norms, hardly anyone took the side of Facebook, when one would expect the default to be: “This is how business works. So what?” Admittedly, some of the antipathy toward Facebook was clearly the result of Zuckerberg’s alignment with the Democratic party. Some Journal readers, for instance, bizarrely depicted lax anti-trust enforcement as a liberal policy. Even though Clinton assigned a lower priority to anti-trust enforcement than his predecessors, giving monopolies and oligopolies close to a free pass has become a two party affair. But many heaped blame on Obama for meeting with Eric Schmidt and “having monopolies as their base”. But it’s not as if Trump is going to have a Damascene conversion on this issue.

Nevertheless, the indignation of many of the comments was striking:

Dolores Watson

It is time to break up big tech companies. We need someone to protect us against a few companies having total control over the internet.

Dan Laroque

Mark Zuckerberg started Facebook in secret while being funded by two guys with money at Harvard. It was their idea and he ripped it off. So, why would he change…

Zuckerberg is a predatory silicon valley billionaire…

Why should we be surprised that Mark baby would seek a total monopoly? Here is a rich white guy born with a silver spoon in his mouth with corporate diversity issues in a company with lots and lots of white men! He will rip off any idea he can discover.

JIM SHULER

Facebook, Google, Apple, and Amazon produce nothing the majority of us do not need. They are all over hyped and over rated. They are vultures and are bad for our country.

James Grundvig

Right out of the Bill Gates playbook. Don’t develop your own products, buy other companies’ products (Excel, Word, PowerPoint, etc.), then be a predator and kill competition. As John D. Rockefeller of Standard Oil famously quoted: “Competition is a sin.”

That’s funny, I believe Darwin had a different, natural view on competition.

It’s hard to know how widely these views are shared, but they suggest that big technology companies have a bigger image problem than they think. But until consumers are willing to vote against them with their wallets and eyeballs, it may not matter much.

Print Friendly

Article Categories:
Financial Economics Blogs

Leave a Comment

Your email address will not be published. Required fields are marked *

Close