Whenever a new online medium gains momentum — whether it’s photo-sharing (Instagram), messaging (WhatsApp), live video (Meerkat), ephemeral stories (Snapchat), or social audio (Clubhouse) — Facebook is sure to follow. So it was no surprise when the company announced last week a near-clone of Substack, the fast-growing newsletter platform that connects notable writers directly with subscribers.
But how, skeptics wondered, could Facebook — whose relationship with journalists is notoriously frayed — compete against a startup that has built its reputation on catering to writers’ needs?
The answer, it turns out, is by offering them financial terms that Substack can’t match. Substack makes money by taking a 10 percent cut of writers’ revenue. Facebook’s cut of subscriptions on its newsletter platform, Bulletin, will be a tidy 0 percent, at least for now. And it paid best-selling authors such as Malcolm Gladwell and Mitch Albom to sign on for the launch. ’'The goal here is to support millions of people doing creative work,’' Facebook chief executive Mark Zuckerberg told reporters.
Those familiar with Facebook’s track record could be forgiven for suspecting that the company is motivated by something more than altruism here. Bulletin may indeed be a useful tool for writers, many of whom will surely welcome the pressure on competitors to lower their fees. But it is also emblematic of a tactic that Facebook and other tech giants have often employed to quash competitors as they expand their business empires into new markets.
From Google Photos to Apple TV Plus to an Amazon subscription service that offered discount diapers, the world’s wealthiest companies routinely launch new products free or at money-losing costs that smaller rivals can’t manage without going out of business. Whether that’s an unfair business practice that merits antitrust scrutiny or just good old-fashioned competition depends on whom you ask — but the tide may be turning toward the former.
For decades, US courts have taken a hands-off attitude toward what was once known as ’'predatory pricing,’' partly on the theory that lower prices are good for consumers regardless of the motivation. If a company wants to take a loss on a product in hopes of gaining market share, the free-marketer’s thinking goes, that’s its prerogative. A problem arises only if it later corners the market and raises prices — in which case, new competitors should spring up to force them back down anyway.
That laissez-faire approach has emboldened tech giants to wield free products and below-cost pricing freely as weapons in their quest to conquer new markets.
In 2009, when Amazon noticed an e-commerce upstart called Quidsi making inroads with a subscription business aimed at parents, Diapers.com, Amazon made a bid to buy it — while launching its own subscription service, Amazon Mom, that offered even steeper discounts. Documents later revealed as part of an antitrust investigation reportedly showed Amazon was willing to lose $200 million in a month on diapers alone to neutralize the threat Quidsi posed. Quidsi gave in and sold to Amazon in 2010. (Amazon founder Jeff Bezos owns The Washington Post.)
In 2015, Google launched Google Photos with the promise of unlimited, free storage and no ads — a money-losing proposition that no stand-alone photo-storage company could compete with. By the time Google started charging for storage in 2020, the innovative startups that once dotted the competitive landscape were mostly defunct.
When Apple launches new subscription products, such as Apple Music and Apple TV Plus, often with free or deeply discounted introductory offers, the company sometimes publicly acknowledges that its goal isn’t to make money on them, at least in the short term. Even so, the company benefits by enmeshing its software ecosystem ever more tightly with customers’ daily lives, so that they’ll keep buying iPhones, iPads, and Apple Watches. Apple can afford to lose money on streaming music indefinitely; rival Spotify, whose primary business is streaming music, cannot.
Similarly, Facebook Bulletin could serve Facebook’s broader interests in numerous ways. It could give newsletter readers a reason to spend more time on its platform, where it can serve them ads. It can better target those ads based on the authors they subscribe to. And it can bolster Facebook’s payment platform, Facebook Pay, which will be the only way to pay for Bulletin newsletters at launch.
There’s no evidence that Facebook Bulletin in particular will raise antitrust flags. In fact, its launch came just a day after a federal judge tossed two major government antitrust lawsuits against the company, sending its stock soaring.
Still, the broader trend of tech giants using loss leaders to undermine upstarts may come under fresh scrutiny amid a wider societal rethinking of corporate power and the power of dominant tech companies in particular.
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July 07, 2021 at 05:47AM
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A classic Silicon Valley tactic — losing money to crush rivals — comes in for scrutiny - BetaBoston
"tactic" - Google News
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