On Wednesday, the US government, along with 48 states and territories, sued Facebook, accusing the company of abusing its dominant position in social media. While the legal battle could take years to play out, the consequences, should the government win its case, are hard to underestimate: Facebook would be forced to separate from Instagram and Whatsapp, turning one social media giant into three.
Most fashion and beauty brands spend a significant amount of both human capital and operating capital advertising and marketing on Facebook’s platforms, so they should be following this case closely. After all, digital advertising for “pure-play media” owners — including Amazon, Facebook and Google — is projected to account for 61 percent of the overall advertising market in 2021, doubling from 2015, according to media buying agency Group M, a subsidiary of the advertising conglomerate WPP.
Here’s what to expect in the weeks, months and potentially years ahead:
A ruling is a long way off. An antitrust lawsuit against telecommunications firm AT&T took eight years to play out in court. The IBM antitrust battle took 12 years. Social media is a fast-moving, fast-evolving business. By the time a trial may end, marketers might not be spending on Facebook or Instagram as much, especially as new competitors emerge.
“[In the short term], so much of marketing budgets goes to Facebook, whether it’s Facebook or Instagram. I don’t think that’s likely to change even if they’re told they have to split up,” said Mae Karwowski, chief executive and founder of influencer marketing agency Obviously, whose clients include L’Oréal, Uniqlo, Saks Fifth Avenue and Sephora.
There are other potential lawsuits that could have more immediate consequences. It’s more likely that the European Union, which tends to have tighter antitrust regulations, will take action against Facebook in the coming years. Brands that spend in those countries should be watching for new developments.
Facebook may decide to spin off Instagram or WhatsApp, or both, anyway.
”In many cases, companies will just break themselves up [and] investors will end up rewarding them when they do it,” said Brian Wieser, global president of business intelligence at Group M. In the past, Facebook chief executive Mark Zuckerberg has made it clear that he does not want to do this, but it could be beneficial. Not only could a spinoff result in a new injection of capital, but it would also allow a company like Instagram to take different sorts of bets and make different sorts of investments on smaller upstarts that have developed new, potentially innovative products. If Facebook loses, the company will need to report any acquisitions over $10 million to state authorities.
“Capital allocation is a real challenge the bigger you get,” Wieser said. “It’s hard to be efficient and make those earlier-scale investments.” Plus, being stuck in court may be bad for business, even if Facebook were to win in the end.
“In many cases, companies also realise because they’re getting tied up in court for so long, their actions will be constrained,” he added. “While it doesn’t necessarily impact the business, it serves as a drag-on.”
The government may not succeed in breaking up Facebook, but the lawsuit is still good for fostering competition, which is, in turn, good for fashion and beauty brands. While Instagram was able to slow Snapchat’s momentum by launching copycat products, it has since rebounded, beating analyst earnings estimates in consecutive quarters this year as brands began investing in the platform again.
TikTok’s success this year shows that consumers seeking newness will migrate to new, more innovative platforms. If brands are early to embrace a new platform, the rewards can be great. Brands that were early to Instagram also benefited, as they were able to increase their audience numbers organically rather than spending heavily on customer acquisition.
Instagram has worked hard to mimic TikTok with its Reels feature, but it has struggled to perfectly duplicate the app’s spontaneous, unpolished style.
”In the end, I think the government will likely fail in its attempt to break Facebook up. But I think it will succeed in preventing Facebook from making anti-competitive mergers in the future,” wrote journalist Casey Newton in a recent edition of his newsletter, Platformer. “The ongoing rise of TikTok, and whatever comes after TikTok, will begin to restore balance to [a] sector of the economy that Facebook dominated for the next decade.”
The more competition there is, the better for brands. Not only from a fiduciary perspective, since competition would hopefully bring ad rates down, but also from an audience perspective. The few brands that invested early in mastering TikTok have managed to reach an entirely new, younger audience. Competition forces a legacy player like Instagram to keep pushing forward. The platform’s push into commerce — it most recently launched a shopping function on its Reels feature — is an indication that it’s trying to keeping both brand partners and users interested.
Companies should already be thinking beyond Instagram, anyway.
“It’s a poor decision to become too reliant on anything to provide you sales,” said Anna Eleri Hart, founding director of digital marketing agency One Roof Social, in an email. “Anything can happen. Surely 2020 has shown us that having a multifaceted strategy to scale and maintain revenues is an absolute necessity.”
While brands tend to follow trends and want to be where their competitors are, “there’s going to be a lot more places to go to spend your advertising dollar,” Karwowski said. “That’s ultimately very great for brands.”
What’s more, brands should be increasingly focused on reaching audiences directly rather through platforms, argued Facebook investor-turned-critic Roger McNamee last week at BoF VOICES.
“You cannot concede to internet companies the primary access to your audience,” he said. “You need to stop adopting each new platform assuming somehow Instagram will save you from Facebook, TikTok will save you from Instagram. Until the [fashion] industry starts to create its own ways of communicating, you’re going to have a problem.”
Additional reporting by Zoe Suen.