Facebook's Move Against Huawei Is Symbolic But Toothless

By Leo Sun
06/10/19

Facebook (NASDAQ:FB) will no longer allow Huawei to pre-install its core app, Messenger, Instagram, or WhatsApp on its smartphones, according to Reuters. The decision comes after several other companies -- including Intel, Qualcomm, and ARM Holdings -- cut ties with Huawei amid the Trump Administration's escalating war against the Chinese tech giant.

In mid-May, the Trump Administration placed Huawei on an "entity list" of companies that are barred from buying American technologies without the government's approval. The ban on Huawei was suspended for 90 days to allow companies to fulfill security and contractual obligations, but Huawei could still be permanently cut off from American technologies if a trade deal isn't reached.

Facebook's decision to stop Huawei from pre-installing its apps initially sounds important, but it's ultimately toothless when you consider a few key issues.

A symbolic move with no real bite

Facebook isn't blocking Huawei users from using its apps, it's only preventing Huawei from pre-installing the apps on new phones, which means that customers simply need to install the apps from an app store like Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) Google Play or Huawei's AppGallery.

Google plans to cut new Huawei devices off from Google Play and other Google services when the 90-day extension ends in mid August. However, Huawei users can still download and install Facebook's flagship apps from the AppGallery, which is pre-installed on all Huawei devices.

Huawei controls 23% of the global smartphone market, according to IDC. But its biggest market is China, where it's the top player with a 28% market share, according to Counterpoint Research. Yet Facebook, Messenger, Instagram, and WhatsApp are all blocked in China -- so the impact there is non-existent.

Meanwhile, users in Huawei's other top markets, like Europe and Latin America, simply need to install Facebook's apps on new phones. Therefore, Reuters' claim that Facebook's decision "dampens the sales outlook" for Huawei greatly exaggerates the impact of a move that really has no bite.
A setback for Facebook's Chinese ambitions

Facebook's main platforms are all blocked in China, but it took baby steps back into the market last year with experimental apps like the photo-sharing app Colorful Balloons, a VR partnershipwith Xiaomi, and the launch of a Chinese subsidiary.

However, Facebook's latest move against Huawei indicates that protecting its business in the U.S. and other markets matters more than its long-term aspirations in China. It's unclear if Chinese regulators will retaliate against Facebook's limited presence in China, but they'll likely shoot down any efforts to relaunch its apps.

Is Facebook trying to curry the U.S. government's favor?
Facebook currently has 2.4 billion monthly active users (MAUs) on its main platform, 1.3 billion MAUs on Messenger, a billion MAUs on Instagram, and 1.6 billion MAUs on WhatsApp.

Based on the size of that ecosystem, Facebook doesn't rely on smartphone makers pre-installing its apps to gain or lock in users. That's generally what underdogs do -- for example, Microsoft partnered with various Android OEMs in recent years to pre-install its apps on phones as alternatives to Google's apps.

However, Facebook's ecosystem is still being scrutinized by the U.S. Federal Trade Commission. The FTC, which was already probing Facebook's privacy and security issues, was recently assigned to oversee a potential antitrust probe of the social network. It could be toughfor the FTC to build an antitrust case against Facebook, because it still has meaningful competitors in the social networking and advertising markets.

Nonetheless, it's still in Facebook's best interest to stay in the government's good graces, so making a symbolic stand against Huawei might convince the Trump Administration to stop targeting Facebook, Google, Apple, and Amazon with FTC or DOJ probes. It just won't actually hurt Huawei or prevent its smartphone users from accessing its apps.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Amazon, Apple, and Facebook. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Facebook, and Microsoft. The Motley Fool owns shares of Qualcomm and has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

This article originally appeared in The Motley Fool.