The Washington PostDemocracy Dies in Darkness

A classic Silicon Valley tactic — losing money to crush rivals — comes in for scrutiny

Facebook’s latest product, a newsletter platform called Bulletin, exemplifies a strategy that some critics think should be illegal

Facebook CEO Mark Zuckerberg at a House Financial Services Committee hearing in 2019. (Andrew Harrer/Bloomberg News)

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 start-up 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 zero 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, U.S. 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-marketeer’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.

The battle to break up Big Tech has just begun

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,, 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 start-ups 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.

FTC Chair Lina Khan holds open meeting amid early challenges

A big step in that direction came Thursday, at the first open meeting of antitrust crusader Lina Khan’s tenure as chair of the Federal Trade Commission. The FTC voted to revoke a 2015 policy statement that had constrained its role in regulating “unfair methods of competition.” While the commission said nothing about Facebook or other tech giants specifically, the move paves the way for it to go after those companies for practices that have long been tacitly permitted in the tech sector — potentially including pricing products below cost to undermine rivals.

That’s something Sandeep Vaheesan, legal director for the left-leaning think tank Open Markets, has been calling for. The charge of predatory pricing — selling goods at a loss to drive out competitors, presumably to raise them later — has gone out of fashion in antitrust law, where courts have adopted stringent tests that make it nigh-impossible to prove. Vaheesan says the FTC under Khan has an opportunity to revive it, perhaps even outright banning certain kinds of below-cost pricing by companies above a certain size or market share.

“We want companies to compete by making better products, investing in new equipment and tech — not purely relying on their financial advantages to capture market share,” Vaheesan said.

Vaheesan says such rules should apply not only to the largest Internet platforms but also to venture-backed insurgents seeking to disrupt established industries by running their businesses at a loss for a decade or more. He cited Uber and Lyft, the ride-hailing companies that have outcompeted taxi companies in part by charging people less money for a ride than it costs the companies to provide. Recently, Uber and Lyft have been hiking prices dramatically amid a shortage of drivers.

Sacrificing profit for growth is core to the Silicon Valley start-up model, and the “smaller rivals” that tech giants are trying to crush are often backed by deep-pocketed venture capitalists of their own. Substack, funded by the VC firm Andreessen Horowitz, is no pushover.

Reporters are leaving newsrooms for newsletters, their own ‘mini media empire’

Four antitrust experts who spoke with The Washington Post were divided on whether a product such as Facebook’s Bulletin is rightly viewed through the lens of predatory pricing (or, in this case, “predatory bidding,” since it’s the writers rather than consumers who are getting the too-good-to-be-true deal). There are valid business reasons for companies to offer low introductory rates on new products, and price wars in a competitive market can benefit consumers — or in the case of Bulletin, writers.

For consumers, there’s little to fear from Facebook’s entry into the market, at least in the short term. If anything, it could allow newsletter writers to offer subscriptions at slightly lower prices, since they don’t have to pay Facebook to use its platform. In the long run, however, they could still lose out if Facebook emerges as the dominant option, especially if they object to the social network’s privacy or data collection practices.

There’s no guarantee that will happen, of course. Facebook’s efforts to copy rivals have met with mixed results over the years, and Substack was quick to suggest that writers should be wary of putting their trust in the social networking giant. Asked for comment on Facebook Bulletin, Substack spokeswoman Lulu Cheng Meservey said, “The nice shiny rings from Sauron were also ‘free.’ ”

When looking at whether below-cost pricing harms competition, it matters who’s doing it, said Christopher Conlon, an economist at New York University who studies competition among companies. “If you started your own Substack clone and ran it as a nonprofit for journalists, you might be hailed as a hero,” he said. “If Facebook does it, I think folks are rightly suspicious.”