The Startups at the Heart of Facebook's Antitrust Woes in Israel

Israel's antitrust authority is also looking into Facebook and asked for details on its purchase of Israeli firms Redkix and Servicefriend after it failed to report mergers

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A man who did not give his name wears a mask of Facebook CEO Mark Zuckerberg as he and others demonstrate outside of Zuckerberg's home in San Francisco. November 21, 2020
A man who did not give his name wears a mask of Facebook CEO Mark Zuckerberg as he and others demonstrate outside of Zuckerberg's home in San Francisco. November 21, 2020Credit: Jeff Chiu,AP

Heading into a massive antitrust suit in the U.S., Facebook may face a similar albeit smaller challenge in Israel. The Legal Department of the Israel Competition Authority (formerly the Antitrust Authority) requested last week information from Facebook on its purchase of two Israeli startups.

The social media goliath failed to submit a notice of merger for the deals, with Redkix and Servicefriend, made in 2018 and 2019, respectively.

The news comes after lawsuits filed against Facebook by the U.S. Federal Trade Commission and nearly every U.S. state. The complaints accuse Facebook of using a “buy or bury” strategy to snap up rivals and keep smaller competitors at bay. They focus specifically on its acquisitions of photo-sharing app Instagram and messaging app WhatsApp in 2014 and could force Facebook to divest the two former rivals.

Servicefriend developed a range of chatbot products that combine artificial intelligence capabilities with human representatives for customer service operations. The acquisition was made as part of Facebook's digital wallet project Novi, which is still in development. 

Redkix developed add-ons for organization email systems. Facebook planned to integrate its capabilities into its Workplace platform, in order to better compete with Slack.

Redkix founders Oudi and Roy Antebi. The company developed add-ons for organization email systems but the antitrust authority in Israel says Facebook failed to disclose the deal in 2018Credit: redkix

According to Israeli law, companies have an obligation to report acquisitions in the following cases: when the acquiring company is a monopoly in a specific market in Israel; when both companies have a combined market share in excess of 50 percent in one of its areas of activity; and when the acquired company has sales turnover of 10 million shekels ($3.075 million) or when the combined sales turnover in Israel of the acquiring and the acquired companies exceeds 360 million shekels.

In the case of Facebook, the agency must determine whether the company has a monopoly in Israel on social media networks or instant messaging platforms.

About two years ago the Knesset Research and Information Center submitted data on the market shares in Israel of Google and of Facebook. Its research showed that Facebook has a market share of 83.1% in the area of social media in Israel. At a conference at which the results of the study were presented, the Director General of the Competition Authority, Michal Halperin, promised to devote 2018 to examining the activity of the internet giants and their influence on Israel's economy. The results of that examination have not been published.

When it comes to addressing the issue of the monopolization of digital platforms, Israel’s antitrust authority seems to be lagging far behind its U.S. and European Union counterparts, which in recent years have examined the issue and imposed heavy fines on Google, Amazon and Facebook.

In 2017, the European Commission fined Google 2.42 billion euros for breaching EU antitrust rules. In November, the commission charged the internet retail giant with using data on the activity of third-party sellers on its platform to gain an unfair competitive advantage. Additional antitrust probes are being conducted against Facebook, Apple, Microsoft and other companies.

The meaning of the examination is that Facebook is being treated as a threat to competition. However, it also begs the question as to why the Competition Authority is conducting such a review now, and whether it comes in the wake of the U.S. suit against Facebook for illegal monopolization, announced December 9. The suit in America has attracted broad coverage because one of the remedies sought by the regulatory organization, the divestiture of Facebook assets acquired in the past decade, including Instagram and WhatsApp, constitutes a major threat to the social network.

As part of the U.S. investigation scrutinizing the history of Facebook’s acquisitions and how the companies it eventually acquired were chosen, it was also argued that Israeli firm Onavo, which Facebook bought, also played a central role in Facebook’s efforts to thwart competition.

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Facebook bought Onavo in 2013 for $150 million. According to the suit, Onavo – which the FTC terms a “user surveillance company” – was the technological tool Facebook used to learn about rival apps. The suit claims Onavo was used to understand which apps could constitute a potential threat to Facebook so it could neutralize them before they grew. “Onavo marketed itself to users as providing secure virtual private networking services, but—unknown to many users—it also tracked users’ online activity,” the complaint said. 

It would appear that the Israeli antitrust agency is taking advantage of an opportunity to show that it is investigating Facebook's conduct in Israel – a worthy endeavor, but one that should have been done right after the acquisitions if not before, rather than so long after the fact.

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