Why Would the Feds Investigate the Facebook-Instagram Deal?

If the Federal Trade Commission is investigating Facebook’s acquisition of Instagram, what does it mean? It could add a new wrinkle to Silicon Valley’s biggest and most anticipated public offering.

The Federal Trade Commission always investigates acquisitions of over $66 million. The agency has 30 days to conduct an initial review to make sure the deal does not break anti-competition laws. Some deals are picked for closer scrutiny. It isn’t yet clear whether this deal was. More to the point, how can it be anti-competitive? Instagram, after all, is one of several photo-sharing applications, even for mobile devices. By buying Instagram, at face value, Facebook does not seem to hurt the consumer’s ability to choose to use any of the others. But there is another theory on which antitrust matters can be based. The government could also be interested in whether a company is killing off a potential rival by swallowing it up. Facebook today is the dominant social network, and it commands the lion’s share of advertising in the social network market. Instagram had no advertisements, but it could have one day started to attract advertisements. That would have meant real competition for Facebook, especially on mobile devices, where the social network has been unable to, by its own admission, generate “meaningful revenue.”