Why WhatsApp is no threat to Facebook’s dominance

I’ve been doing some reporting in the Caribbean and elsewhere abroad recently, which led me to begin using WhatsApp for the first time. In large swaths of the world, people use WhatsApp as their primary texting tool: It’s free, it’s fast, and you can send photos, videos and audio as well as text. And you can set up a chat room to foster group communication rather than just person-to-person texting.
The latter feature, of course, is the core of what Facebook Inc. offers its users. Indeed, the people with whom I’ve been texting on WhatsApp have told me that when they first started to communicate as a group three or four years ago, they relied on Facebook. They moved to WhatsApp because it worked better for them. It was easier to use on a smartphone, there were no ads, privacy was paramount, and the only way you could join the group was to be invited in — making it difficult for outsiders to penetrate. As a social media platform, it was useful to them in a way that Facebook no longer was.
To put it another way, if Facebook hadn’t bought WhatsApp in 2014 — paying an astonishing $22 billion for a company with only $10 million in annual revenue — WhatsApp might now be a pretty stiff competitor for the 800-pound gorilla of social media. When Facebook bought it, WhatsApp had 500 million users. Today, it has over 1.5 billion, putting it within shouting distance of Facebook’s 2 billion-plus. And those users are very loyal and engaged: Nearly 80 percent of them are on the app every day.
Then there’s Instagram. Though its numbers are smaller — it has about 800 million users — its story is similar. Many people who were using Facebook primarily to post photos have gravitated to Instagram because that’s what it’s all about. And like WhatsApp, Instagram also might have been a serious platform competitor to Facebook. Except that Facebook bought it in 2012 (for a mere $1 billion).
Facebook is now in reputational hell, over scandals including data privacy and Russia’s involvement in the 2016 presidential election. If ever there were a time when a strong competitor might be able to make serious inroads, it is now. Yet angry users who want to switch platforms really have no place to go. If they move to WhatsApp or Instagram, they are still sailing on the Good Ship Facebook, just on a different deck. LinkedIn, which Microsoft Corp. bought in 2016 (for $26 billion), is a site for business people to talk business. There’s almost nothing else out there with the critical mass of users you need for a halfway-decent social media site.
Earlier this week, the news broke that WhatsApp’s co-founder, Jan Koum, was leaving Facebook. Part of his reason, according to the New York Times, was that he was increasingly perturbed by Facebook’s stance on user privacy, and wanted the company to institute stronger data protections. He was also tired of resisting pressure from Facebook to make money from WhatsApp, with ads and so on.
But it seems to me that it was inevitable Facebook would eventually want to morph WhatsApp into something that more resembled, well, Facebook. Monetizing people’s data is the company’s core competency. Koum comes across as a privacy idealist, which might be a good look in this moment — but the reality is that he ran a business without ever figuring out how to make money. Facebook founder Mark Zuckerberg was not going to let his $22 billion acquisition of WhatsApp serve as some kind of social media loss leader forever.
To my mind, the real Facebook/WhatsApp question — and let’s throw Instagram in there too — is why regulators allowed Facebook to buy them in first place. In 2010, Zuckerberg boasted that he bought companies for their talented staffs, rather than for the businesses themselves. With Instagram and WhatsApp, that mantra obviously no longer held: He bought them because he could see that one day, they might become serious threats to Facebook’s social media primacy. That seems obvious now. But that insight was completely missed by the government’s antitrust regulators in the US and even by the usually more-skeptical European Union regulators.
The Instagram acquisition, two years before that of WhatsApp, was approved because of a failure of imagination: Regulators simply couldn’t envision the photo-sharing company ever competing with Facebook. Here, for instance, is how the Office of Fair Trade in the UK put it:
Today, in addition to having more than its fair share of eyeballs, ads and “marketing opportunities,” Instagram serves another important purpose for Facebook: It’s the company’s Snapchat killer. Every time Snapchat adds a new feature, Instagram copies it. No wonder Facebook doesn’t seem too worried about competitors.
In an ideal world, an aggressive antitrust department would sue Facebook to force it to divest its two acquisitions, especially WhatsApp. Instead, this Justice Department is put its energy into breaking up the AT&T-Time Warner deal. It is a pointless exercise, weirdly aimed at prolonging a cable television model that is in terminal decline. What US regulators should be focusing on is the big Internet companies that are only getting more powerful.
In the case of Facebook and WhatsApp, it’s too late, alas. For all of Facebook’s reputational problems, no one in the government is calling for it to be broken up. But if this current Department of Justice truly wants to stop mergers that reduce competition and innovation, it should focus less on AT&T and more on Facebook. It should face the future, not the past.

—Bloomberg

Joe Nocera is a Bloomberg Opinion columnist covering business. He has written business columns for Esquire, GQ and the New York Times, and is the former editorial director of Fortune. He is co-author of “Indentured: The
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