When Facebook bought WhatsApp for $22 billion in 2014, many observers scratched their heads. The smaller messaging platform had annual revenues in the low tens of millions. How could it be worth so much?
Soon enough, however, Facebook’s logic became clear. While little noticed in the US, WhatsApp was already a juggernaut overseas, with hundreds of millions of users. In countries where Facebook was not as popular, the acquisition gave Mark Zuckerberg’s company an immediate foothold. As one WIRED headline put it in 2015, “WhatsApp is how Facebook will dominate the world.”
The story neatly illustrates a key subplot in the tale of Big Tech: The most powerful firms have achieved their dominance not just by being the best but by buying the rest. Facebook had done it with its purchase of Instagram in 2012 (and failed with Snapchat the following year). Google bought its biggest competitors in the online ad space, Doubleclick and AdMob, in 2008 and 2009. Amazon bought Zappos.com, the online shoe retailer, around the same time. And the Federal Trade Commission, the US government’s antitrust regulator, approved them all, watching Big Tech become bigger through successive multibillion-dollar buys.
Plenty more deals lacked the eye-popping price tags but still reshaped Silicon Valley, as the big companies bought up smaller services in their markets only to later snuff them out—what some have called killer acquisitions. Remember the photo-sharing site Picasa, or the email client Sparrow? Probably not: Google bought them for undisclosed terms and phased them out of existence, while continuing to invest in Google Photos and Gmail.
Overall, the strategy of gobbling up the competition, whether to incorporate it or extinguish it, has worked well for the tech giants. They also had the benefit of coming along when antitrust enforcement was at a low ebb, after decades of policy driven by an ideological consensus that mergers are generally good unless they raise consumer prices. But reformers like Lina Khan, now the majority counsel to the House Judiciary’s antitrust subcommittee, have drawn attention to other forms of harm that can stem from monopolization, including the crushing of small businesses and entrepreneurs. That thinking is reflected in the wide-ranging nature of the FTC’s new inquiry.
On Tuesday, the agency announced that it would be issuing “special orders” to five top tech companies—Amazon, Apple, Facebook, Alphabet (Google’s parent company), and Microsoft—asking for information about all their acquisitions from 2010 to 2019. Well, almost all: The order is focused on transactions that were small enough to get under the mandatory reporting requirement, which as of last year meant being valued at under $90 million. That means the commission isn’t preparing to revisit its decision to greenlight the Facebook-WhatsApp deal, or other high-profile mergers like Google-Nest and Amazon-Whole Foods.
Still, the inquiry, which could take years, is set to be extensive. Between the five companies, there could be hundreds of mergers to review; Apple alone was buying a company “on average every two to three weeks” last year, CEO Tim Cook told CNBC at the time. And the agency is asking a lot of questions, seeking information on everything from acquisition strategies to noncompete clauses to how the companies treated the data they obtained when they took over smaller firms.
In a conference call with reporters on Tuesday, FTC Chair Joseph Simons suggested that the main priority is simply figuring out whether smaller transactions should be subject to reporting requirements moving forward. But he didn’t rule out taking action. “If during this study we see transactions that were problematic, all our options are on the table, and it is conceivable we can initiate enforcement action with those deals,” he said.
Amazon, Facebook, and Google declined to comment, while Apple did not respond to a request. In an emailed statement, a Microsoft spokesperson said, “We look forward to working with the FTC to answer their questions.”
The FTC’s order joins a growing list of tech antitrust activity already underway in Washington, including parallel investigations at the Department of Justice, the House Antitrust Subcommittee, and the FTC itself. Meanwhile, a coalition of state attorneys general is conducting its own inquiry.
Antitrust experts who have criticized the FTC for being too timid greeted the special order with qualified enthusiasm. “I think it’s a very good idea,” said Sally Hubbard, director of enforcement strategy at the Open Markets Institute. “We need to have in-depth study and public airing of information, about this history of acquiring competitive threats, growth through acquisition and what it has meant for competition going forward.” While the agency “should definitely have been more on the ball” with earlier mergers, she added, it deserves credit for revisiting past policies. “No agency wants to go back and point out how terrible of a job they’ve been doing.”
Maurice Stucke, an antitrust scholar and the coauthor of Big Data and Competition Policy, said he was encouraged by the fact that the FTC is including questions about how big firms are treating the data they acquire when they roll up smaller companies. “Having that data can help Google or Facebook obtain or maintain dominance in other markets,” he said. “And that has been lost on the agencies.”
“It’s noteworthy, but now the question is what do they do with it,” he added.
Indeed, antitrust enforcers may be comfortable talking about new theories of competitive harms, but so far the rhetoric has far outpaced enforcement. Just this week, a federal judge rejected a group of states’ challenge to T-Mobile’s acquisition of Sprint—with the DOJ intervening on behalf of the cell companies, even though the merger will drop the number of national carriers from four to three, making an already highly concentrated market even more so.
Still, there is at least some evidence that the FTC’s concern with killer acquisitions isn’t just rhetorical. In December, the commission unanimously voted to challenge a biotech firm takeover in which the DNA testing giant Illumina—which boasted an annual revenue of $3.33 billion and, according to the FTC, controlled 90 percent of the US market for next-generation gene sequencing—was offering more than a billion dollars to acquire Pacific Biosciences, whose annual revenue was only $78.6 million. According to testimony recently submitted by Simons to the House antitrust subcommittee, this was the first time under his watch that the commission has objected to a monopolist trying to “extinguish” a “nascent competitive threat.” Two weeks after the FTC issued its complaint, the companies abandoned the deal.
It was a small reminder that the commissioners have real power to stop mergers that they think will squelch competition. But we’re still a long way from finding out how much they intend to use it.