The GiD Report#139 — The landmark antitrust case against FB, Visa + Circle/USDC is a big deal

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GlobaliD

11 min readDec 15, 2020

Welcome to The GiD Report, a weekly newsletter that covers GlobaliD team and partner news, market perspectives, and industry analysis. You can check out last week’s report here.

Well — a LOT went down this last week:

The landmark antitrust case against FB
Don’t expect it to be a panacea
Why the real solution is always innovation/competition
Visa + Circle’s stablecoin USDC is a big deal
Why porn is suddenly taking identity so seriously
This week in credentials
Stuff happens

1. Make no mistake, last week’s lawsuits against Facebook were a landmark moment in American antitrust history.

As Greg Kidd noted, this is “the big one.”

It’s been a long time coming—and how quickly the tide has turned. Not five years ago, Big Tech was still the bell of the ball. Today, you’d be hard pressed to find a Facebook defender. Regulators have turned — both federal and state. So have the public at large.

Last week’s lawsuits included not only the FTC but also now 48 state attorney generals. In a time of intense social and political division, such comprehensive consensus speaks volumes.

As Kara Swisher opined, Facebook has become a menace.

Here’s the latest from Axios:

Both the Federal Trade Commission and the states want to break up Facebook, not just reform its practices. This wasn’t a given, or inevitable. The FTC also wants the court to require Facebook to seek approval for future acquisitions, going beyond what’s already required under law.
Facebook’s moves to freeze out competitors raised antitrust alarms. The FTC argues that Facebook limited third-party software developers’ access to its platform in anticompetitive ways and cut off firms it perceived as threats.
Privacy, regulators now say, is a competition concern. The states’ lawsuit mentions privacy dozens of times, arguing that Facebook surveils its users and that its monopolistic practices have reduced the “quality and variety of privacy options and content” available to the public. The states also argue that WhatsApp started as a privacy-focused app and Facebook has slowly eroded its privacy protections.

Also, BI:

What the lawsuits really represent, experts said, is an indication that the government will no longer look the other way when it comes to how Facebook operates.
“Every acquisition they try to make from here on will be met with such a level of inspection and skepticism associated with it,” one expert told Business Insider.

Notable that this stance is not just limited to Big Tech and Facebook if the ongoing Visa/Plaid situation is any indication.

Greg outlined his take on Twitter. On the lawsuits:

You can and do need to turn back the clock when it comes to anti-competitive behavior that destroys #innovation and user rights to their own data.

On Facebook and privacy:

#Facebook’s pattern of bogus privacy claims are simply a cover for a pattern of anti-competitive behavior and misuse of the Computer Fraud and Abuse Act (#CFAA).” Users should be able to view their own data however they see fit to authorize.

The thing is — this fight isn’t new nor are Facebook’s anti-competitive tactics, of which those who have been on the short end of the sticks have been keenly aware, as Greg points:

46 states are now following up on the same grounds as our portfolio company
@LenddoEFL — which sued #Facebook over anti-competitive blocks to #API access that deny users access to and control of their own data. Original filing: https://tinyurl.com/y4otqucr

Of course, those at the short end of the stick continue to expand in numbers. Matt Stoller:

So what changed? Well, we made the case for the rule of law. Many people were involved, like Jeff Chester, who opposed the Instagram and WhatsApp mergers at the time. The list of people who sought to address the harms of Facebook grew every year I was paying attention, and I started paying attention closely in 2013. Just in terms of what we did and Facebook’s reaction, we wrote, researched, and advocated against monopolization, and Facebook in particular. For one shareholder meeting, we hired an airplane to draw in in the sky outside of Facebook’s shareholder the slogan “You broke democracy.”
In response, Facebook hired a company to investigate us, and then tried to smear us in the press as anti-semites in an attempt to undermine our arguments. We were no strangers to retribution by powerful monopolists, and we aren’t the only ones that Facebook sought to target. I suspect they regularly go after many people. I mean, just before the election, Facebook sued NYU researchers trying to study how its political ad targeting worked after its ad archive ‘accidentally’ malfunctioned. This kind of dirty stuff is routine, it’s a business in Washington, D.C., and increasingly Brussels. It’s the crust of corruption protecting the slime of monopoly.

2. But don’t get it twisted. It would be naive to assume antitrust regulation to be some sort of panacea to widespread problems that the Facebook monopoly symbolizes.

For one, experts question the long term effectiveness of legal action on its own:

The FTC and states have to prove that rejecting Facebook’s acquisitions would have made life better for consumers and increased industry competition — a tough case to make, legal experts told Axios.
The court will be looking at whether the acquisition of WhatsApp, for instance, was lawful when it occurred in 2012, not whether it would be lawful now, said Kristen Limarzi, a partner at Gibson, Dunn and Crutcher and former chief of the appellate section of the DOJ antitrust division.
One hurdle for the FTC is “that they reviewed the transaction and cleared it,” she said. “Their suit depends on admitting they made a mistake in 2012.”
It’s not common for the FTC to try to undo previous acquisitions, but it has happened, said Jeffrey Jacobovitz, a partner at Arnall Golden Gregory and former antitrust attorney at the FTC. He called the FTC suit “super aggressive.”

And:

Wall Street analysts told Business Insider’s Martin Coulter that the lawsuit might not actually have legs to hold up in court, and a spinoff of Instagram and WhatsApp is unlikely to happen, Lightman said.
“If you break them up now, are you going to give them a refund check?” Lightman said. There are so many integrated assets, from engineers and executives to user data, so the question is how does that even begin to be unraveled, according to Lightman.
Experts said what the lawsuit really represents is being part of a series of governmental actions signaling the broader consensus that the industry needs oversight.
“It’s time to take all of these companies seriously, both in terms of the incredible benefits they’ve provided to our economy, to the marketplace of ideas and to our personal lives, but also the problems that they pose for those same things,” Dinielli said.

Rather than the end, it’s just the beginning.

3. Instead these latest actions serve as one part of a multi-pronged campaign. Another prong will be innovation and competition.

Like Matt Stoller, I also started paying attention to Facebook nearly a decade ago when I was still covering Wall Street and Big Tech for VICE/Motherboard (before setting my sights on a nascent thing called Bitcoin). That beat eventually culminated into an investigative longread about Diaspora (an open source, decentralized social network), at the time, the most successful Kickstarter project on the platform.

Even as early as 2010, Facebook had already soiled its reputation:

Since it launched, as Facebook made tweaks to privacy settings — with the presumption that privacy standards were changing — users were largely kept out of the loop, learning of privacy abuses after the fact. They were like the proverbial frog in the pot of water, slowly coming to a boil. The frog jumps out if the heat’s turned up too fast. But if it’s turned up gradually, the frog never notices, and stays in the water until it boils. Except the anecdote is fallacious. Most of the time, the frog notices.
In February of 2010, at the height of Facebook’s run-in with the public’s trust, a law professor named Eben Moglen delivered a public lecture at NYU titled “Freedom in the Cloud.” “The human race has susceptibility to harm, but Mr. Zuckerberg has attained an unenviable record: he has done more harm to the human race than anybody else his age,” Moglen declared, and outlined the dubious contract the connected world was entering into with Facebook. “Namely, ‘I will give you free web hosting and some PHP doodads and you get spying for free all the time.’ And it works. That’s the sad part, it works.”

Enter Diaspora:

The idea was simple. Build a decentralized, open source version of Facebook for the Freedom Box. Own your data. Own your social network. No Mark Zuckerberg. No need for real names. Just the people. Hoping to raise some funds for what was supposed to be a summer distraction, the team posted their idea on then little-known microfinance site, Kickstarter, with an unfussy target of $10,000. They called it Diaspora*, which fit the project’s decentralizing aims nicely. From the Greek διασπορά, “scattering, dispersion,” it’s “the movement, migration, or scattering of people away from an established or ancestral homeland” or “people dispersed by whatever cause to more than one location.”

TL;DR — Diaspora didn’t work out (in tragic fashion). Here’s what Bram Cohen, creator of BitTorrent, told me at the time:

To Cohen, guru of p2p, Diaspora isn’t just cumbersome: it’s deeply flawed. And it’s not something we really need at the moment. “There may be room for a form of social networking somewhere between email and Facebook,” he wrote in an email. “It can’t just be a verbatim copy of Facebook though, it would need some rethinking.” And a big part of it is timing. All of this is relatively brand new and a solution like Facebook in its current form still has much to offer. “I think it’s a good idea to wait for things to get more mature before trying to build something less agile.”

And that’s essentially how things played out. Facebook’s centralized and integrated approach to the world still had much to offer — and when its influence started to wane, they deftly picked up the hottest new kids on the block in Instagram and WhatsApp, extending its ascent and power.

As Bram keenly pointed out, Diaspora was ahead of its time. A lot has happened since then. The Facebook platform, IG and WhatsApp in tow, is fully matured. We’ve seen the rise of Bitcoin and crypto and blockchain — open source, decentralized projects with builtin mechanisms for financing and consequently, economic sustainability.

Which brings us to the next prong. New approaches that leverage the innovation we’ve experienced the last decade and a more populace, one that now expects and demands more.

So the legal fight is important. But what will really pave the road to a better future is actually building the solutions that take us there and compete with a status quo that is clearly failing us.

What’s cool is that it’s already happening.

(It’s one reason why Libra — or Diem as it’s now called — is core to Facebook’s long term strategy. Mark Zuckerberg, too, can see where this is going.)

Relevant:

Tech giants are the new gatekeepers
Tech giants’ life cycles shape their crisis responses
For tech’s big four, big contrasts

Also in antitrust:

Also in competition:

4. Speaking of Facebook and Diem, Visa moving into the stablecoin space with the help of Circle is a big deal.

First the news from Forbes:

Credit card giant Visa today announced it is connecting its global payments network of 60 million merchants to the U.S. Dollar Coin (USDC) developed by Circle Internet Financial on the ethereum blockchain. The digital currency is now valued at $2.9 billion.
While Visa itself won’t custody the digital currency, effective immediately, the partnership will see Circle working with Visa to help select Visa credit card issuers start integrating the USDC software into their platforms and send and receive USDC payments. Circle itself is also going through the same Fast Track program. In turn, businesses will eventually be able to send international USDC payments to any business supported by Visa, and after those funds are converted to the national currency, spend them anywhere that accepts Visa.

How Visa sees it:

“We continue to think of Visa as a network of networks,” says Sheffield, a five-year veteran of Visa, who took over as head of crypto last June. “Blockchain networks and stablecoins, like USDC, are just additional networks. So we think that there’s a significant value that Visa can provide to our clients, enabling them to access them and enabling them to spend at our merchants.”

Why it’s a big deal:

Visa estimates that $120 trillion in payments annually are made using checks and instant wire transfers, costing as much as $50 each, regardless of the size of the transaction. Since USDC settles on the ethereum blockchain, transactions can close in a little a[s] 20 seconds and, importantly, can be done for nearly free, Visa believes its vast array of merchants could choose to use this nearly instant alternative form of payment. “We worked closely with digital currency wallets to issue Visa credentials,” says Sheffield. “And helping them receive USDC payouts can add additional value for them.”

Moreover, the move essentially creates a direct connection between Visa and the crypto universe with Circle’s USDC serving as a bridge — no doubt a savvy move by all parties involved, one that could also have a huge impact on the continued mainstreaming of Bitcoin et. al.

Keep an eye on this space.

Relevant:

Via /m + /gregkidd— Visa Partners With Ethereum Digital-Dollar Startup That Raised $271 Million

Also in crypto:

5. Almost overnight, Pornhub starts taking identity seriously.

They’ve already deleted over 9 million videos uploaded by unverified accounts, according to Motherboard (via Todd).

As Todd notes, “As we know, porn drives innovation!”

We’ve mentioned before how OnlyFans has also taking a proactive approach towards robust identity and payments functionality.

Relevant:

6. This week in credentials:

The GiD Report#139 — The landmark antitrust case against FB, Visa + Circle/USDC is a big deal

1. Make no mistake, last week’s lawsuits against Facebook were a landmark moment in American antitrust history.

2. But don’t get it twisted. It would be naive to assume antitrust regulation to be some sort of panacea to widespread problems that the Facebook monopoly symbolizes.

3. Instead these latest actions serve as one part of a multi-pronged campaign. Another prong will be innovation and competition.

4. Speaking of Facebook and Diem, Visa moving into the stablecoin space with the help of Circle is a big deal.

5. Almost overnight, Pornhub starts taking identity seriously.

7. Stuff happens:

Written by GlobaliD