by Kurt Wagner and Josh Sisco
Seven years ago Mark Zuckerberg floated the possibility of spinning off Instagram from his social media empire amid rising regulatory scrutiny of the technology sector and an increasing concern that the photo sharing app was “cannibalizing” the success of Facebook.
Writing in a May 2018 message to senior leaders at his company, the billionaire acknowledged that he thought the platforms may be broken up in the next five to 10 years, and it was worth exploring whether the executives should get ahead of this possible outcome.
The prophetic revelations have now been unearthed during the first week of an antitrust trial in Washington federal court. The Federal Trade Commission alleges the acquisitions of Instagram in 2012 and WhatsApp in 2014 have given the company now known as Meta Platforms Inc. a social media monopoly, and is fighting to break up the company. Meta argues that it doesn’t have a monopoly, and faces a wide array of competitors, including ByteDance Ltd.’s TikTok, Google’s YouTube, and Apple Inc.’s iMessage.
Zuckerberg tried to head off the trial in late March by proposing a $450 million settlement, far from the $30 billion the FTC had demanded, the Wall Street Journal reported Tuesday, citing unidentified people familiar with the matter. The agency’s new chairman, Andrew Ferguson, found the offer not credible and rejected it. Zuckerberg, who has in recent months tried to build a rapport with President Donald Trump, led a “frenzied lobbying effort” to avoid the trial, the newspaper reported.
“We haven’t been shy about explaining why it doesn’t make sense for the FTC to bring a case to trial that requires it to prove something every 17-year-old in America knows is absurd — that Instagram doesn’t compete with TikTok,” Meta spokesperson Dani Lever said in a statement. “We are prepared to win at trial.”
White House officials didn’t immediately respond to a request for comment.
The FTC first opened its investigation into the company, formerly named Facebook Inc., in 2019, and ultimately brought the antitrust lawsuit in 2020. But the political headwinds against the world’s largest social media company began several years earlier. Senator Elizabeth Warren, a Democrat from Massachusetts, was criticizing the sector and corporate concentration writ large back in 2016, and by 2018 Meta was facing an FTC privacy probe over the Cambridge Analytica data privacy scandal.
“I’m beginning to wonder whether spinning Instagram out is the only structure that will accomplish a number of important goals,” Zuckerberg wrote in the 2018 message. That also included efforts to “immediately stop artificially growing Instagram in a way that undermines the Facebook network.”
Explaining his thinking back then all these years later in court, the Meta chief executive officer testified that he needed to “take into account the direction that the politics seemed to be going at the time.”
The FTC’s court challenge poses an existential threat to Meta’s dominance. A breakup would disrupt some of the world’s most popular digital products, undo the market leader’s years of integration between the apps and Facebook, and raise serious questions about how the government evaluates and approves deals.
The first two days of the trial have focused largely on Zuckerberg’s view of potential competitors from 2010-2014 when he was pivoting his social network to focus on users with mobile devices. Zuckerberg was confronted Tuesday with a 2012 email exchange with David Ebersman, then the chief financial officer of Facebook, in which they discussed the rationalization for acquiring apps such as Instagram.
When Ebersman suggested that one reason for buying Instagram could be to “neutralize a competitor,” Zuckerberg replied that this was indeed a motivation, among other reasons.
Instagram and another social networking app, Path, “are building networks that are competitive with our own,” Zuckerberg wrote in the 2012 exchange. “One way of looking at this is that what we are really buying is time. Even if some new competitor springs up, buying Instagram, Path, Foursquare etc. now will give us a year or more to integrate their dynamics before anyone can get close to their scale again.”
Under questioning by FTC lawyer Daniel Matheson, Zuckerberg didn’t concede that the primary motivation for the Instagram deal was the company’s scale in reaching a widespread audience, though several internal emails cited Instagram’s rapid growth as a major threat to Facebook. Zuckerberg said that Instagram’s popular photo filters were also a key attraction for acquiring the app.
“It’s not accurate to say that the only reason we were interested was the scale or growth rate, which I think that your question is implying,” he said.
On Monday, Zuckerberg was questioned for more than three hours primarily about the Instagram acquisition and his company’s failed attempt to build a rival photo-sharing product back in 2011 and 2012. Lawyers for the FTC brought forward dozens of old emails and documents that showed how Facebook struggled to compete with Instagram’s rapid growth and ultimately acquired the startup instead.
Zuckerberg was worried Instagram would grow big enough to copy some of Facebook’s social networking features, emails showed. On Tuesday, Zuckerberg was presented with more emails outlining his motives for both deals.
“Messenger isn’t exactly beating WhatsApp, Instagram was growing so much faster than us that we had to buy them for $1 billion,” Zuckerberg wrote in a November 2012 email to then-Chief Operating Officer Sheryl Sandberg. “That’s not exactly killing it.”
When asked by Matheson whether he would have preferred to build an Instagram-like service in-house, Zuckerberg responded, “I guess so, $1 billion is very expensive.” He acknowledged that even if Meta had built a rival product, “how it would have done is a matter of speculation.”
Zuckerberg also acknowledged blocking advertising on Facebook for messaging apps WeChat, Kakao and Line, which he said in a 2013 email are “trying to build social networks to replace us.” Zuckerberg tried to walk back that statement in his Monday testimony, saying “It’s hard for me to characterize what their intent was.”
Matheson sought to show in his questioning Tuesday that messaging services were becoming an increasingly competitive focus area for Facebook in the years before it acquired WhatsApp; several messaging services in Asia were also building social networking features at the time. In an email to Facebook’s board of directors in February 2013, Zuckerberg wrote that he was concerned that rivals like China’s Tencent Holdings Ltd. may expand outside of Asia, including by buying WhatsApp.
“Mobile messaging is the next biggest consumer risk and opportunity,” he wrote. Tencent hasn’t “expanded outside Asia yet, but this is a big risk for us.”
The FTC’s argument hinges, in part, on its claim that Meta harmed users after acquiring the two companies by increasing the quantity of ads and watering down privacy protections.
Questioning by the FTC Tuesday suggested that Zuckerberg’s decision to increase ads on Instagram and potentially spin off the service was an indication that Meta’s strategy post-acquisition had led to a degraded experience for users across Meta’s products. Zuckerberg noted in one of the messages to other executives that he was concerned Instagram was “cannibalizing” Facebook’s user base, for example.
But in response to those questions, Zuckerberg said he was mostly concerned with boosting profits at Instagram. “We were kind of lopsided in how we were managing the company at the time,” Zuckerberg testified, saying that Facebook was driving the bulk of Meta’s revenue at the time.
The FTC wrapped its questioning of Zuckerberg with about an hour left in the day, and he is expected to return to the stand Wednesday to be questioned by Meta’s lawyers. Later in the week, Sandberg is expected to testify. The trial is likely to carry into July.
Copyright Bloomberg News
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