It’s Not Time to Break Up Facebook

I finally read the Chris Hughes piece on breaking up Facebook. While he makes some excellent points, he also repeats mistakes that others have made in proposing a solution to Facebook’s power.

Hughes asserts that WhatsApp and Instagram would be profitable if spun off. This is far from certain; Instagram relies on Facebook’s infrastructure to a very large degree. It makes money selling ads, but a standalone Instagram would need to make heavy investments in building its own independent backend systems.

WhatsApp, on the other hand, has no business model to speak of. Instead, WhatsApp is a communications utility that users get for free. You don’t have to view ads and the communication is encrypted end-to-end. It generates massive consumer surplus.

The second mistake Hughes makes is believing that if Facebook were broken up, a social network in which users paid a fee not to view ads would flourish.

A social network is most valuable when all your friends are actually on it. Logically, this leads to a horizontal service that can reach as many people, at the lowest cost possible (free!).

Lastly, calls for antitrust action in software markets tend to reach a crescendo just as there is an underlying paradigm shift that makes such action pointless.

As an example, the call for antitrust action against Microsoft happened around the same time the internet took off, followed by mobile. Microsoft’s organization was not suited to deal with either, and the world saw innovation with Google, and then Apple and Android. Microsoft has continued to flourish by focusing instead on the enterprise market.

I suspect the same will be true of Facebook. What’s the paradigm shift this time? Crypto. In time, we’re likely to see an explosion of innovation—including social networks—in which users get paid through tokens.

The best way to deal with Facebook’s power is to give that power up to an independent body. Mark Zuckerberg has talked about this for over a year. An institution that can independently judge what content is allowed or not on Facebook would resolve the majority of the pain point for Facebook’s critics, including Hughes.