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Facebook’s Profile Will Change, Win or Lose


Don’t scroll past

Facebook’s

FB -0.29%

latest bit of melodrama.

On Wednesday, the Federal Trade Commission and 46 states sued the social-media company over anticompetitive practices, seeking to force the world’s largest social network to unwind its acquisitions of Instagram and WhatsApp. Facebook arguably has been in lawmakers’ sights since the contentious 2016 presidential election, and the Cambridge Analytica scandal in 2018 certainly didn’t help matters. After years of threats, investors seemed to view the main event as almost anticlimactic, skeptical that such lawsuits will amount to any material change in the near term. Shares of Facebook were down less than 2%, on pace with a selloff affecting big tech peers on Wednesday, with an even more muted drop on Thursday.

While all large tech companies face pressure from regulators, Facebook seems to be the easiest target given its structure as three distinct apps. But investors’ doubts about the feasibility of a breakup certainly have merit. Both of Facebook’s acquisitions, for instance, were approved by the FTC itself, and proving that competitors and consumers were harmed, as the suits say, won’t be easy. If anything, the cases will likely take years to resolve.

But that doesn’t mean Facebook will skate by in the meantime. The company, which has made its fortune by spending big money to make big money, needs to prove out a fresh strategy to keep growing.

Facebook’s advertising business, which still accounted for nearly 99% of its overall revenue in the third quarter, appears to be reaching a saturation point. Ads served on its platform have been increasing by a quarterly average of almost 30% year on year for at least the last five years. Filling its acquired Instagram with them has contributed to that growth, first on the main feed and more recently in the app’s Stories feature. In some cases, users are seeing more ads than the new content they came to the app for. With other social platforms such as Tik Tok, Snapchat and

Pinterest

gaining traction, Facebook already walks a fine line between engaging its users and annoying them.

Facebook has been working to change that, hoping to make their platforms destinations for shopping as much as for sharing. That certainly seems to be the plan for WhatsApp, for which Facebook paid an eye-popping $19 billion in 2014, even though the nature of its encrypted communication seems directly at odds with advertising. The company’s most recent plans to purchase customer-service platform Kustomer suggests Facebook will seek to monetize WhatsApp instead through tools for merchants to communicate with Facebook’s customers.

Suddenly, Facebook’s plans for WhatsApp seem all the more critical. Even if lawsuits against the company do little to change its current structure, it seems abundantly clear that growth through acquisition is no longer an option.

Facebook has historically been a bet that advertisers would keep boosting its share of their budgets. Now it needs to coax its users to open their wallets. Pulling off that shift while under the government’s microscope will be difficult to say the least.

New York State Attorney General Letitia James outlined a sweeping antitrust suit against Facebook by the Federal Trade Commission and a bipartisan group of 46 state attorneys general, targeting the company’s tactics against competitors. Photo: Saul Loeb/AFP via Getty Images

Write to Laura Forman at laura.forman@wsj.com

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Appeared in the December 11, 2020, print edition as ‘Facebook’s Profile Will Be Altered, Win or Lose.’



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