Facebook and Insta – not many saw its future worth at the time

When Facebook bought Instagram for $1 bn in 2012 it was deemed to be an extravagant amount for a loss-making business. Two years later it splashed out a seriously chunky $19 bn for WhatsApp which at the time was a pretty simple proposition employing a mere a handful of people and which was regarded as an equally questionable deal.

Not even Facebook founder Mark Zuckerberg could have foreseen that these two acquisitions would prove to be the future power-houses of the business – today each is worth many multiples of their original purchase price. Instagram and WhatsApp have helped Facebook become the behemoth it is and public enemy number one for regulators and Governments looking to tax it and clampdown on its increasing power and influence.

If the US competition authorities could go back in time they would absolutely veto both these Facebook purchases. But nobody could have been able to predict the outcome of these deals that were actually done as much for defensive reasons – to protect Facebook’s market share – as they were to exponentially grow its business.

They cannot be blamed for anything because not even the competition bodies have the capability to see into the future. To speculate in such a way would arguably be dangerous. Their findings and conclusions should only be drawn from hard evidence. This is why I find it rather surprising and worrying that the UK’s Competition and Markets Authority (CMA) has chosen to investigate the inclusion of Amazon in the £450 million investment round in Deliveroo that was announced in June.

Amazon and Deliveroo – under investigation

This would give Amazon a minority stake in the business that delivers food to people’s homes, which is something Amazon had attempted to do via its Amazon Restaurants operation before it closed it down in 2018 after two years.

The key argument of the CMA is that the move would limit competition in the delivery sector whereas Deliveroo has countered this by stating the injection of cash by Amazon will do the absolute opposite – by improving its chances of competing vigorously in the market.

This is particularly pertinent now that the Just Eat acquisition by Takeaway.com has been agreed and creates a very powerful force in the market. To create the necessary competition surely requires a well-funded deliveroo. Seemingly to mollify the market (amid the criticism of the Deliveroo investigation) the CMA also announced it was launching an investigation into the Just Eat deal.

The CMA had originally suggested that there was a “material likelihood” that Amazon would re-enter the market if there was no tie-up with Deliveroo – thereby increasing competition. But this is pure speculation on the part of the CMA, argues Index Ventures (one of the investors in Deliveroo). The CMA also predicts that Amazon could exert material influence over Deliveroo to the point that the businesses would cease to be distinct.

Just Eat and Takeaway.com – also under investigation by the CMA

How could these potential future actions be foreseen by anybody? They clearly cannot. The only reasoning behind such interventions by the CMA has to be as a result of the increasing pressure placed on such regulators to make these big calls that mark them out as actively stymying the creation of the next Facebook or Google that go on to command outsized positions in the market. The problem is that this clearly brings bias into their arguments as they become overly negative and thereby put a potential brake on growth and innovation.

Please don’t be mistaken into thinking that I’m anything other than neutral on Deliveroo or any of the other food delivery companies, my argument is purely against the dangerous ground that the CMA is currently playing on. If the decision makers at the CMA can predict the next Facebook then they should arguably be running an investment fund rather than a Government department.

Glynn Davis, Retail Insider 

This piece was originally published on Propel Info where Glynn Davis writes a regular Friday opinion piece. Retail Insider would like to thank Propel for allowing the reproduction of this column.