Facebook’s acquisition of Instagram was the greatest regulatory failure of the past decade, says Stratechery’s Ben Thompson

 

Instagram gave Facebook unfair reach, Thompson argues.

By Kurt Wagner  Jun 2, 2018, 10:00am EDT

For years, Facebook has argued that it’s a platform: An unbiased technology service for all ideas, brands, media companies and people to distribute their work.

That’s not really the case, argues Ben Thompson, the founder of the influential tech newsletter Stratechery. Thompson presented Thursday at Recode’s annual Code Conference and argued that Facebook and Google, two well-known “platforms,” are actually more like aggregators, an important distinction.

He also argued that, as an aggregator, Facebook’s $1 billion acquisition of Instagram, which is one of the best tech acquisitions of all time, was also a massive regulatory failure.

You can watch Thompson’s full presentation above, but here’s a brief summary:

• The main takeaway here is that platforms, unlike aggregators, can make money for third parties that build on top of them. If you’re truly using the underlying technology platform to build your business, you should reap the benefits of being on that platform, Thompson argues. One good example: Amazon Web Services, which provides the technology for developers but is invisible to the actual consumer.
• Facebook and Google don’t fall into this platform category. “The aggregator is firmly in the middle,” Thompson said. “An aggregator completely intermediates.” By this definition, Google and Facebook act as aggregators by delivering information to users without necessarily connecting them directly to the information source.
• “A platform is when the economic value of everybody that uses it exceeds the value of the company that creates it.” That’s a quote Thompson attributed to Microsoft founder Bill Gates, and, he says, it’s an important distinction. That’s because Facebook and Google are creating much more value for themselves than for anyone who builds on their respective “platforms,” including publishers that use those companies for distribution. “Facebook and Google are taking all of the value of their ecosystems,” Thompson said. “There no reason for Facebook, beyond goodwill, to do anything for publishers.”
• Why does any of this matter? Regulation. The best way to regulate an aggregator is to “limit horizontal expansion,” Thompson said. “The greatest regulatory failure of the last 10 years is Facebook being allowed to buy Instagram,” Thompson said. “They were able to expand their access in a horizontal way to more users and more time within those users themselves.”