The EU has approved Facebook’s landmark $19 billion acquisition of messaging startup WhatsApp — determining that the two are “not close competitors”. In a statement confirming the clearance, it highlights three key areas where it believes the two do not create an anticompetitive environment for other players in this space: consumer communications services; social networking services; and online advertising services.
The third of these — advertising — is perhaps the most surprising of all. The EC backs away completely from privacy questions, and goes so far as to say that if WhatsApp did run Facebook advertising (a surprise in itself, given the promises both companies have made), it still would not violate competition since there are so many other companies out there mining your data that are outside of Facebook’s domain:
“There will continue to be a sufficient number of alternative providers to Facebook for the supply of targeted advertising, and a large amount of internet user data that are valuable for advertising purposes are not within Facebook’s exclusive control,” the Commission writes.
This was the last big regulatory hurdle that Facebook needed to clear before getting approval for the deal, after the deal cleared an Federal Trade Commission investigation in the U.S. earlier this year.
“The Commission found that Facebook Messenger and WhatsApp are not close competitors and that consumers would continue to have a wide choice of alternative consumer communications apps after the transaction. Although consumer communications apps are characterised by network effects, the investigation showed that the merged entity would continue to face sufficient competition after the merger.”
The European Commission’s Competition directorate has published a lengthy statement that outlines its thinking in how the merger would not infringe on consumer communications services; social networking services; and online advertising services:
In communications, the Commission said that it focused its investigation on smartphone apps only (since that is the only platform where WhatsApp is active today). The Commission found that Facebook Messenger and WhatsApp are not close competitors,” the statement reads plainly.
Although Facebook has been making moves to drive more separate downloads of Messenger — by now requiring people to use the separate app instead of messaging within Facebook — the EC highlights the integration of the two as one reason why Messenger is a different experience from WhatsApp.
That’s because WhatsApp is based on mobile numbers, not social network ID-based sign-in: “Despite the fact that Facebook Messenger is a standalone app, the user experience is specific given its integration with the Facebook social network.” For WhatsApp, as users of it know, you create a contacts list based on phone numbers in your address book, while for Facebook Messenger, a Facebook profile is required. “Users seem to use the two apps in different ways and many of them use the two apps simultaneously on the same mobile handset. Furthermore, this is a very dynamic market with several competing apps available on the market, such as Line, Viber, iMessage, Telegram, WeChat and Google Hangouts.”
In turn, this has a direct relationship of the “network effects” for each of these apps, and they are subsequently not overlapping enough:
“Given their popularity, both WhatsApp and Facebook Messenger already have large customer bases. However, a number of factors mitigate the network effects in this particular case. Indeed, the Commission found that the consumer communications apps market is fast growing and characterised by short innovation cycles in which market positions are often reshuffled. Moreover, launching a new app is fairly easy and does not require significant time and investment. Finally, customers can and do use multiple apps at the same time and can easily switch from one to another.”
On the subject of social networking, the Commission says that this is too much of a moving target to be deemed a strong enough reason to prevent a merger. In its words, “The market investigation showed that their boundaries are continuously evolving.”
Referring to the feedback from the 60-page questionnaire that the EC sent out to other app makers, carriers and others that have businesses in the messaging space, the EC noted that some third parties “suggested that WhatsApp is already a social network which competes with Facebook.”
However, the EC determined that, in fact, the parties are “if anything, distant competitors in this area, in particular given a substantially richer experience offered by Facebook.”
It also cited other messaging apps like Line and WeChat as evidence of that. (Indeed, this threat was one of the key reasons that Facebook was likely choosing to consolidate with the biggest player of al in the messaging app space.)
The subject of online ads is perhaps the most interesting of the three areas of the EC’s evaluation, as it touches on other, wider regulatory issues around privacy that are being tackled elsewhere.
What’s interesting is that the EC evaluated this case not on the basis of there being no ads on WhatsApp — a position that WhatsApp has been unequivocal about — but on the basis of the how, even if they did eventually run ads there, it “would not raise competition concerns.”
This is because it says there are a lot of other competitors out there tapping into online user data and creating targeted advertising elsewhere, which are outside of Facebook’s exclusive control.
“In particular, the Commission examined the possibility that Facebook could (i) introduce advertising on WhatsApp, and/or (ii) use WhatsApp as a potential source of user data for improving the targeting of Facebook’s advertisements. The Commission concluded that, regardless of whether Facebook would introduce advertising on WhatsApp and/or start collecting WhatsApp user data, the transaction would not raise competition concerns. This is because after the merger, there will continue to be a sufficient number of alternative providers to Facebook for the supply of targeted advertising, and a large amount of internet user data that are valuable for advertising purposes are not within Facebook’s exclusive control.”
That is a creepy statement in itself, when you really think about it. But the EC washes its hands of those kinds of implications: “Any privacy-related concerns flowing from the increased concentration of data within the control of Facebook as a result of the transaction do not fall within the scope of EU competition law.”
Ironically, Facebook has been one of the most-scrutinized online companies when it has come to privacy in Europe.