The Office of Fair Trading (OFT) is to investigate Facebook’s $1bn bit for the takeover of Instagram amid fears that the deal would restrict the use and growth of the photograph uploading service. Interested parties have been given just two weeks to give statements to the OFT, with investigations to begin on 5th July.
Instagram is a photo upload and social networking app. Launched in 2010, the app gained over 30m users in less than 18 months, offering a service to take, edit and share photographs through Instagram’s own social network, Facebook, Twitter or e-mail. Apps have now been launched for both iPhone and android users, with success which has earned the application widespread commendation as the fastest growing application ever.
The bid by Facebook represents a decision, approved by Mark Zuckerberg, CEO of Facebook, to try to expand in the mobile market. With Facebook not yet able to bring adverts to users over its mobile application, this section of its service has proved to be the least profitable.
The OFT is to decide firstly whether Facebook’s bid is within its jurisdiction. In order to be considered by the OFT the deal must create a company with a UK revenue of more than £70m or with a 25 per cent market share. As Facebook’s UK revenue figures are not currently known, and the market for photo uploads is yet to be analysed, this information is not yet known.
Once the OFT has established this, it must go on to consider whether the deal would be harmful to competition. The OFT can then compel action from either or both businesses, or can choose to refer the whole bid to the UK Competition Commission. The final ruling of the OFT will be on 23rd August.
Throughout this investigation, Facebook has worked well with the OFT, however as they are facing similar investigations from the Federal Trade Commission in the USA, it is likely that even if the OFT drops the investigation, it may be some time before the deal is finalised.