The feds want to break up Facebook. Good luck with that.

Facebook critics have cheered as the Biden administration trained its sights on the company for practices that federal regulators say invade people's privacy, unfairly squash rivals and more generally maintain its stranglehold on the social media world. The recently expanded lawsuit filed by the Federal Trade Commission openly characterizes co-founder Mark Zuckerberg as an old-school monopolist, raising the hopes of detractors and rivals alike that the government may even push to smash his brainchild into pieces.

Don't bet on it. Antitrust experts and Wall Street analysts say the U.S. faces long odds in its battle with Facebook, predicting that a breakup of the world's largest social media company is highly unlikely. Investors seem to agree. Facebook shares have gained 4% since the government sharpened its case last week.

"[T]here is very little chance that FB is required to be broken up, as we expect the FTC to lose the case," Chase White, an analyst with Height Securities, wrote in a recent report.

One major factor giving Facebook the edge: Decades of conservative court decisions have raised the bar for proving monopolistic behavior. Meanwhile, the usual procedural hurdles remain in place. The FTC's case will only proceed if it survives Facebook's motion to dismiss it —  a process lawyers expect to stretch until early next year at the earliest. 

"I think Facebook will rightfully fight this case tooth and nail because it would set a very unhelpful precedent and risk the unwinding of WhatsApp and Instagram, which is something Facebook would want to avoid," said attorney Zarema Jaramillo, a partner at Lowenstein Sandler who who advises companies on antitrust issues.

Defining the market

The FTC's argument that Facebook is a monopoly hinges on how the social networking market is defined, then proving that the company's dominance harms competition.

"These network markets are something rather new — they're not like steel and coal," Eleanor Fox, a law professor at New York University who specializes in antitrust and competition, told CBS MoneyWatch. 

Even if antitrust enforcers are able to demonstrate that Facebook has a large share of that market, it would still need to show that it has "market power" — in other words, that "the alternatives [to Facebook] are not very good and not very strong," Fox said. 

The FTC defines a "personal social network" as a place where users make "personal connections in a shared social space." That distinguishes it from other social networks where people can connect with like-minded strangers (Twitter, Reddit), professional networks (LinkedIn) or people living in their physical neighborhood (Nextdoor). 

In this market, Facebook's closest competitor is Snapchat — another app primarily for connecting with real-life friends, but which has a fraction of Facebook's users and revenue. 

For its part, Facebook claims it has an abundance competitors, pointing players including YouTube, TikTok, Spotify and Strava.

"The relevant market and market power argument is the big one," Jaramillo said. "The burden is on Facebook to really dispel these allegations. … They have to define the market broader than the FTC."  

Proving harm will be the other hurdle, she noted. "If [the FTC is] able to establish that that is the relevant market, and defined as narrowly as it was in their complaint, and Facebook does have market power, the question really is, how has Facebook abused that market power?" 

Insta-growth

Facebook's adverse impact on competition is clear in the company's pattern of absorbing smaller companies that threaten its core product — social networking. Facebook's 2012 purchase of Instagram as the photo-sharing app threatened to become the dominant social networking tool on mobile devices exemplifies that strategy, according to the FTC's complaint. 

In addition to buying competitors, critics say Facebook also restricts smaller developers — whose products often replicate those of Facebook's functionality — from using the company's application programming interface, or API. The FTC's complaint lists two examples: the short-video app called Vine, and Circle, a social networking app — both were cut off from using Facebook's "finding friends on Facebook" feature. 

Broadly speaking, of course, using such methods to crush the competition is legal under U.S. law. No surprise, then, that the judge who initially dismissed the FTC's case (forcing the agency to refile it) noted that Facebook had no obligation to treat Vine fairly. That underscores the uphill climb the government faces convincing the court that Facebook's restrictions on smaller developments hurt competition. 

The FTC's objection to Facebook's purchase of Instagram faces another obstacle. According to most analysts, Instagram has grown much faster under Facebook's ownership than it would have on its own.

"A lot of the success Instagram has had wouldn't be possible if it hasn't been bought up by Facebook," noted Mandeep Singh, a senior technology analyst with Bloomberg Intelligence. 

White, of Height Securities, agreed, saying that "we just do not see a court siding with a fully hypothetical argument around Instagram's potential outside of FB." He deemed the FTC's revised complaint "likely enough to proceed, but not enough to win."

What about advertisers?

The government might have an easier time showing Facebook's dominance in advertising, where the company generates nearly all of its revenue. Facebook's power effectively means that businesses pay more to advertise on the platform than if there were viable competitors, according to the FTC.

Facebook has argued that, like the social media world, the ad market is "relentlessly competitive." More certain is that the company's reach and the precision of its ad targeting has made the site the only game in town for many nascent online businesses, industry experts said.

"If you are a small business right now ... the way you are going to acquire customers is basically by showing your ads on Facebook," said Singh of Bloomberg Intelligence.

Since last summer, as many small businesses have moved online and new businesses have sprouted up, the cost of advertising on Facebook has risen between 40% and 80%, according to Gupta Media, which tracks online ad prices.

Breaking up is hard to do

Although experts are skeptical that Facebook will be forcibly broken up, many expect tighter restrictions on the company. For instance, a judge could bar Facebook from acquiring more social media platforms, or require it to allow users to take their data elsewhere. The court could also demand that Facebook put firewalls between Instagram, WhatsApp and Messenger and its main social networking service.

Today, Facebook leverages information about user activity on all three of its major platforms. "That's what make the ad targeting so good," Singh said. "If … Facebook wasn't allowed to share data, that could definitely affect its ability to target ads."

Meanwhile, the legal battle has only bolstered the push to pass new antitrust laws among activists, scholars and lawmakers, as existing laws may be ineffectual.

"There's an existential question out there about whether the big platforms fit the model about monopoly power," said NYU's Fox. "This is a new kind of power that might not be measured in the old ways."