In new industries, smaller players are frequently bought up or vanquished by deeper-pocketed, more-innovative rivals. Google’s general counsel, Kent Walker, wrote in response to the European Commission decision that even as smaller sites have retreated, Amazon has grown to become a huge player in comparison shopping.
Internet platforms have high fixed and minimal operating costs, which favors consolidation into a few deep-pocketed competitors. And the more customers a platform has, the more useful it is to each individual customer—the “network effect.”
But a platform that confers monopoly in one market can be leveraged to dominate another. Facebook’s existing user base enabled it to become the world’s largest photo-sharing site through its purchase of Instagram in 2012 and the largest instant-messaging provider through its purchase of WhatsApp in 2014. It is also muscling into virtual reality through its acquisition of Oculus VR in 2014 and anonymous polling with its purchase of TBH last year.
What Facebook doesn’t acquire, it copies. Snap Inc.’s Snapchat, a fast-disappearing photo and video sharing app hugely popular with teenagers, was widely seen as a challenger to Facebook. But in 2016, Facebook introduced its own Snapchat-like feature, Stories, on Instagram, which now has more users and advertisers than Snapchat. That has undercut Snap’s growth and profits by reducing the number of new users “interested in trying Snap for the first time,” says Peter Stabler, an analyst at Wells Fargo.