Remember When Craigslist Was the Site Being Unbundled? Now It’s Facebook
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In 2012, Andrew Parker, A VC at Spark Capital, put together a now famous graphic of all the marketplace companies trying to carve out a niche from craiglist.
Now, it seems like Facebook is the company that many entrepreneurs are trying to carve niches out from. In the last few weeks, there’s been a lot of comments to the effect of “I’d love to delete Facebook, but I use [Messenger, Groups, Events] a lot and there’s not real substitute.” All of these niches are uniquely enabled by Facebook’s Social Graph, but, to a varying degree, companies have had success in carving out a nice business for themselves.
Unfortunately (for competition’s sake), Facebook has also bought some of the competitors that once encroached on crucial FB functionalities (Instagram and photo sharing, Whatsapp and messaging). Additionally, some of these companies existed before Facebook, but have remained viable businesses over the years through some differentiation. Some of these startups may occupy multiple niches, but I highlighted their main functionality here.
Unless you’ve been living under a virtual rock the past couple months, you’ve probably played, or even read a think piece or two, about HQ Trivia. The app, brought to us by the genius bros who previously built Vine, has caused quite the stir, and reportedly seems to think it’s worth about $100 million now. Me too, me too. Unlike many an attention-garnering app before it, HQ must be allowed to succeed, or more likely, fail, based on its own merits. Facebook, or any other large Internet player (FAMGA, FANG, the Frightful 5. Choose whichever acronym you’d like), shouldn’t be allowed to swoop in and purchase a young, competing startup. The FTC has been consistently derelict in its duty of promoting competition on the Internet, leading to an increasingly closed ecosystem.
Perhaps the last app to cause such a stir was tbh, the app which gained 2.5 million daily active users in 9 weeks by allowing users to anonymously answer kind-hearted multiple choice questions (most likely to be President?) with a few of your contacts as the choices. tbh was quickly acquired by Facebook and now sits somewhere around the #63 most popular social media app on the App Store (a few spots below Google+ and a few above Grindr, for what it’s worth). The purchase price was reportedly below $100 million, but still not bad for an app with no obvious business model or route to monetization.
And so it is for HQ now. Perhaps its route to monetization is more obvious — advertising or sponsored questions/quizzes, a la the BuzzFeed model — but being just a few months old its sole focus is acquiring more users. Much the way Facebook snatched up Instagram in 2012 and tbh in 2017, I worry a larger competitor may try to buy HQ before it fully develops a competitive business model. These purchases of young, high-growth startups have created an unnecessary consolidation of power in three markets: (1) the “attention market,” or the game to attract and engage users, (2) social networking, and (3) digital advertising. The long term consequences of such consolidation are worrisome for us, loyal netizens.
First, the attention market. This is the game companies play to try and attract your attention, so they can (eventually) sell advertisements based on user numbers. HQ has obviously done something impressive, winning a few minutes of teenager and millennial attention in what is a zero sum game (a minute I spend playing HQ is a minute I don’t spend scrolling through my Instagram feed). Companies and apps should be competing to provide a better user experience for the attention we “spend” on the app. Save the constant technical glitches, the market has proven that HQ is providing users some enjoyment that Facebook, Insta, Snap, etc. are not. I’ll save my high-minded thoughts on how we should really be spending our limited supply of attention for another post, but the reality is we need competition in the market for our attention. Allowing Facebook to consolidate this market has worrying long-term implications: More ads, less (or no) choice, Facebook acquiring ever more user data, etc. Allowing a large player to acquire HQ lessens this competition, providing less incentive to continue building a great user experience and innovate.
Second, social networking. Acquisitions can hyper-charge the network effect of a social networking app. This is exactly what happened when Instagram was acquired: buoyed by Facebook’s social graph and ad platform, the Gram took off, soon passing upstart Snapchat in daily active users. While it’s not as obvious how HQ could benefit from being acquired by Facebook and having access to its massive resources, and most importantly, its social graph, it’s also not hard to paint a scenario where HQ moves beyond viral hit and becomes an app with real staying power, fueled by Facebook’s monetary and non-monetary resources (e.g. its social graph and ad platform). Not to mention the ‘book has long been interested in a live video play (what happened to all those Facebook Live billboards I used to see?). And rival Google has long been looking for a social media play — seriously, how is Google+ still #57 in the App Store?
Finally, the money. Digital advertising. In the U.S. in 2016, Facebook and Google accounted for 99% of all revenue growth in digital advertising. Resilient independent Snapchat has struggled since going public last year to gain any foothold in advertising. Again, the FTC and its peers across the pond have shown little interest in recognizing the importance of maintaining a competitive digital advertising marketplace. When evaluating the Instagram purchase in 2012, the U.K. Office of Fair Trading wrote “While Facebook generates revenue from advertising and users purchasing virtual and digital goods via Facebook, Instagram does not generate any revenue,” seeming to make the assumption that perhaps Instagram had no long-term interest in generating revenue.
For the sake of the Internet, HQ shouldn’t be acquired: it should be forced to succeed and innovate on its own laurels. Or, it’ll prove itself as another viral fad and we’ll erect a tombstone next to Yik Yak, Secret, Vine, and the other apps that demanded our attention just for a bit. By the way, HQ’s skeezyfounders seem intent on staying independent. I am rooting for my Quiz Daddy though.
The reality though, is that the government has limited options for even stopping such an acquisition if Facebook were to make HQ an offer they couldn’t refuse. HQ is still only engaging a few hundred thousand users for less than 30 minutes a day, hardly an antitrust concern. For example, when Facebook acquired Instagram, the FTC issued no more than a stock letter approving the deal, seemingly unconcerned about the long-term implications of consolidation in the three markets mentioned above. Indeed, it’s unclear the FTC even acknowledges the existence or importance of the markets defined above, and their importance in the daily lives of most people. Sure, the parties will have to submit the merger to the FTC under the Hart-Scott-Rodino Antitrust Improvements Act, but there’s no evidence it’d get a second look as even remotely anti-competitive. And if AT&T-Time Warner or Disney-Fox isn’t anticompetitive, then who tho hell cares about a little app with a few hundred thousand users and a host with mediocre jokes that happens to ruin everyone’s New Year? That’s the larger, more worrisome piece of this. We have a system completely unresponsive and unable to address current market dynamics, which is leading us to an increasingly consolidated Internet ecosystem. It happened in radio, TV broadcast, cable, and so perhaps it’s only natural that the Next Great Communication Network would fall victim to the same fate.