Understanding the landscape of Facebook's dominance

Facebook clearly dominates social media.

But showing how and what Facebook monopolizes is tricky, especially if you're a regulator pursuing antitrust action against the company.

The "Roadmap for an Antitrust Case Against Facebook" published by the Omidyar Network in June begins to make this case in the U.S. But more is needed.

Properly defining the market Facebook dominates will be critical to the success of any federal effort to rein in the excessive power Facebook has over civic life and online display advertising.

It should also help the public better understand why such a popular and useful website is being singled out.

Clear definition of markets dominated by digital giants will also strengthen the political case for regulatory reform and additional funding for enforcement agencies.

An anticipated Federal Trade Commission antitrust suit against Facebook will hinge in part on this definition. It could be groundbreaking, setting a precedent for antitrust enforcement and regulation of "free" services that surveil users and exploit that personal information.

Defining monopoly power is usually done in terms of price, explained John Kirkwood, a Seattle University law professor and veteran of the FTC Bureau of Competition.

"If you don't have a price then it's much vaguer, much more indefinite," he said.

It's easier to show monopolizing conduct. Then, instead of deciding whether a company has monopoly power, the test is whether there's a significant reduction in competition, Kirkwood said.

That's reflected in the sweeping investigation into competition released Oct. 6 by the U.S. House Committee on the Judiciary's antitrust subcommittee.

The report goes into great detail about Facebook's conduct, particularly acquisitions and unequal treatment of business partners. But it doesn't plow much new ground defining the market that Facebook dominates.

Facebook's statement in response to the House report defends the acquisitions, asserts competition is strong and rejects attempts to narrowly define its market. This may also preview its defense: "We compete with a wide variety of services with millions, even billions, of people using them."

For Facebook market definitions, the House investigation leans heavily on the Omidyar Network's "Roadmap."

The Omidyar report in turn draws on market definitions that the United Kingdom Competition and Markets Authority first published in July 2019. That extensive report on online platforms and digital advertising raised the bar for U.S. regulators.

In the U.K., Facebook has more than 50% of the display advertising market and Google has more than 90% of the search ad market. Together they collected around 80% of total digital ad sales, the U.K. report found.

Although many websites have features similar to Facebook — including personal profiles, personal news feeds, contact lists — the U.K. authority said they can be differentiated in part by how much they emphasize communication between users, versus consuming content as on YouTube.

Based on time spent on social platforms, Facebook has a 58% share of the U.K. market, or 75% share if counting subsidiaries WhatsApp and Instagram, the Omidyar report notes.

The Omidyar report describes Facebook as a social network company, versus the broader "social media" term used by the U.K. authority. It says a key differentiator is the use of a social graph, which is Facebook's core system for mapping and analyzing not just user activity on the platform, but also the web of connections between users, locations and actions.

Yet other online platforms have their own graphs. The differentiation between Facebook's social networking market and the broader social media market including YouTube is also open to debate.

What's easier to define is the advertising market where Facebook competes. Ad prices and transactions are easier to measure and compare, though Facebook isn't as transparent and audited as traditional media platforms.

Still, Facebook's share of the display ad market doesn't reach the 70% range that usually prompts antitrust action.

The House investigation referenced a Washington Post article citing an eMarketer forecast predicting Facebook would have 22% of the overall U.S. digital ad market in 2019. Google's share was expected to fall a percent to 37.2%, so together they'd take 59% of the market.

The harms of this power concentration are more thoroughly documented by the Omidyar and House reports.

The U.K. report also explains how consumers end up paying for free services. Spending on digital ads amounted to around $650 per U.K. household last year, a cost that drives up prices paid by consumers. The ad cost — and profit margins of Google and Facebook — would be lower if the market was more competitive, it said.

Consumers and their communities also suffer when a distorted market deprives content providers, such as newspapers, from revenue needed to invest in news coverage.

The House investigation noted that nearly 2,000 newspapers closed or merged since 2004 and more will be lost if digital platforms continue profiting from news content without fairly compensating those producing it.

"This cycle has a profoundly negative effect on American democracy and civic life," the investigation said.

Then there are the harms that monopolies and anti-competitive business practices cause to innovation and consumer choice.

Cataloging the symptoms of anticompetitive conduct may turn out to be the easy part, as regulators and Congress embark on a new era of antitrust enforcement.

First they must bring definition to the amorphous, evolving markets where Facebook wields its excessive power and influence.

Brier Dudley is a member of The Seattle Times editorial board.