Antitrust suits could be biggest threat yet to Facebook's business
The historic lawsuits brought against Facebook Wednesday could be the first serious threat to the tech giant's booming business.
Why it matters: Facebook's user growth and bottom line have historically been resilient in the face of external pressure. But the lawsuits, if they succeed, would fundamentally limit Facebook's ability to keep growing so fast.
How it works: Some of the most drastic measures in the lawsuits brought by The Federal Trade Commission and 48 state and territorial attorneys general call for Facebook to sell Instagram and WhatsApp, two companies it acquired for $1 billion and $19 billion in 2012 and 2014, respectively.
- Instagram is a financial powerhouse for the tech giant, bringing in roughly 30% of its nearly $70 billion in annual revenue last year.
- While monetization on WhatsApp is still nascent, the company says its fastest-growing ad format is "click to message" ads, which allow advertisers to target users with ads that direct them to WhatsApp or Messenger to chat with businesses.
- Facebook also has big plans to one day make money off of transactions from e-commerce conducted on WhatsApp.
Be smart: In the years since acquiring both apps, Facebook has been able to significantly grow its Facebook Audience Network, an ad network that allows businesses to buy ads targeted to Facebook users on other apps that aren't owned by Facebook.
- The Audience Network is a key source of revenue and a massive growth opportunity for Facebook. Its value to advertisers is the breadth of data available to marketers that they can use to narrowly target ads to the right people at the right time.
- The Facebook Audience Network would likely become a lot less useful to marketers if Facebook no longer had access to Instagram's more than 1 billion users and WhatsApp's more than 2 billion.
The big picture: Facebook has likely spent billions of dollars in integrating Instagram and WhatsApp with its main social network platform.
- The company announced this year that it had officially combined the backend infrastructure for three of its messaging apps (WhatsApp, Messenger and Instagram) so that businesses could communicate better with customers across apps.
- Instagram and WhatsApp have also helped to broaden Facebook's reach among younger users and international users, respectively.
Yes, but: A break-up is the worst-case scenario for Facebook, and winning an antitrust suit like this is a tough hill to climb legally.
The bottom line: Facebook isn't new to regulatory challenges. But to date, none of them — even a $ 5 billion settlement over privacy law violations last year — has fundamentally changed the way it does business. A loss with these lawsuits could change that.