Facebook's Onavo could be key to monopolization case against the company

US investigators scrutinizing Facebook for potential antitrust violations have zeroed in on the social network’s acquisition in 2013 of an Israeli mobile analytics startup, Onavo. While public calls to break up the company have focused on Facebook’s acquisitions of Instagram and WhatsApp, the Onavo purchase — and the way the company subsequently used the information it gleaned from the startup — could be the linchpin for building a monopolization case.

When Facebook bought Onavo in 2013 for about $120 million, the social network portrayed the purchase as a part of the company’s efforts to build “better, more efficient mobile products.” At the time it was bought, Onavo operated a series of consumer-facing apps to help track bandwidth usage among other things. But that also gave Onavo access to key data — what apps consumers were downloading and how they used them.

At its height, Onavo was available for both Google’s Android and Apple’s iOS with about 33 million installs, most of which were in the US, according to app analytics firm Sensor Tower. Apple would eventually remove Onavo from the iOS store for violating its privacy and data-security rules. But for roughly five years, Facebook used the information collected by Onavo to monitor its rivals and help pick acquisition targets — a fact Facebook was upfront about.

“When you use our VPN, we collect the info that is sent to, and received from, your mobile device. This includes information about: your device and its location, apps installed on your device and how you use those apps, the websites you visit, and the amount of data use,” Onavo told users installing its app on their phones. “Because we’re a part of Facebook, we also use this info to improve Facebook products and services, gain insights into the products and services people value, and build better experiences.”

In questions to Facebook, House Judiciary investigators have zeroed in on how that data collected by Onavo might have given the social network an advantage. In a Sept. 13 document request, the panel asked Facebook to provide documents and communication between company executives with “citations of Onavo data, including but not limited to, discussions regarding any potential or actual competitors, any competitive threats, any features that Facebook should consider introducing, and any companies that Facebook should consider acquiring.”

The Federal Trade Commission, which is separately investigating Facebook, is also understood to have asked similar questions about Onavo. A group of state attorneys general is also planning to investigate Facebook. While that probe is in very early stages, the states have indicated they plan to explore Facebook’s “dominance over communications and information.”

Much of the discussion around Facebook and antitrust has related to its previous acquisitions. When Facebook bought Instagram in 2012 and WhatsApp in 2014, antitrust authorities around the world looked into the deals, but none challenged them.

Making a case to challenge either merger would have been difficult. As Facebook is always keen to point out, Instagram had only a handful of employees when it was purchased. While Facebook Messenger and WhatsApp do compete in the market for messaging apps, regulators found the combination wouldn’t give the company a dominant share and that consumers tend to use more than one messaging app anyway.

Seeking to unwind either deal based on straight merger law would still likely prove difficult. Antitrust prosecutors would have to convince a court that Instagram or WhatsApp competed in the same market as Facebook and that the mergers resulted in anticompetive harm such as higher prices or reduced innovation. That would require showing that the companies could have stood on their own as a competitive threat to Facebook, a difficult hurdle to clear.

Instead, prosecutors could try to convince a court that the acquisitions of the three companies — Instagram, Onavo and WhatsApp — were part of a course of conduct designed to maintain Facebook’s dominance of the market. That would also allow investigators to pull in aspects of what Facebook actually did with the data Onavo provided about rival apps — such as incorporating popular features from rival photo-sharing apps Snapchat and Timehop, and group video app HouseParty.

As FTC Competition Director Bruce Hoffman noted in Senate testimony this week, with a monopolization case, prosecutors don’t need to show that a potential entrant like Instagram would have succeeded and improved conditions in the market. They would need only to show that eliminating the threats contributed to a defendant's continued dominance.

The FTC has hinted heavily that a monopolization case, often called a Section 2 case after the provision in the Sherman Act, was a possibility. In March, FTC Chairman Joseph Simons said his agency would be looking at acquisitions of competitors as a form of monopoly maintenance. Patricia Galvan, head of the FTC’s Big Tech taskforce, the group investigating Facebook, made similar comments at a conference in May.

"There is an ongoing discussion internally" about investigating mergers as conduct violations, she said.