Meta Platforms Chief Executive Mark Zuckerberg said he saw the writing on the wall when he suggested to a trusted circle of colleagues in 2018 that the company take the "extreme step of spinning Instagram out as a separate company" rather than have a hostile US government do it for them.
Meta Platforms Chief Executive Mark Zuckerberg said he saw the writing on the wall when he suggested to a trusted circle of colleagues in 2018 that the company take the "extreme step of spinning Instagram out as a separate company" rather than have a hostile US government do it for them."I wonder if we should consider the extreme step of spinning Instagram out as a separate company. I understand the business value of having Instagram and Facebook together, so I don't raise this lightly. I'm also not suggesting this is the likely outcome. But I don't think this is quite as crazy as it may initially seem either," he said in a May 2018 e-mail.
The confidential e-mail was sent to Meta's former chief operating officer, Sheryl Sandberg, and other senior executives including former chief technical officer Mike Schroepfer and company veterans Chris Cox, Javier Olivan and David Wehner.
"It is not too hard to imagine the calls increasing to break up the tech companies, and the next Democratic president taking action to do so. At that point, we will face extremely high pressure, brand damage, and distraction," Zuckerberg said in the e-mail.
"On the flip side, while most companies resist break ups, the corporate history is that most companies actually perform better after they've been split up. The synergies are usually less than people think and the strategy tax is usually greater than people think,” he wrote.
The hot docs were shown during a monopolization trial brought by the Federal Trade Commission against Meta Platforms. Zuckerberg was testifying for a second consecutive day in a Washington, DC, federal court. The lawsuit, filed in late 2020 under the first Donald Trump presidency, seeks to split up Instagram and WhatsApp. The acquisitions were made in 2012 and 2014, respectively.
Daniel Matheson, attorney for the FTC, quizzed Zuckerberg about the document. "Which incidents in corporate history do you have in mind when you communicated to your colleagues that most companies actually perform better after they've been split up?"
“I'm not sure what I was… what I had in mind,” Zuckerberg replied. The FTC attorney didn’t prod the tech executive with the same question again.
The Meta CEO’s executive document then suggested using Facebook's advertising demand and targeting the information to increase the value of Instagram ads.
"But we may overestimate this because in reality, this wouldn't all go away — if Instagram spun out tomorrow, we'd put a simple revenue share deal in place to keep the ads integration going. And at the same time, we likely underestimate the burden of the strategy tax on the teams," he wrote.
"Again, I'm not saying we should actually do this now. But as we consider it, we should keep in mind that there's a real chance that all our work to build a family of apps may be something we don't get to keep. And if we continue on a path — intentionally or not — where we siphon off the value from the Facebook network to other apps that we eventually spin out, we may later regret not course correcting sooner in a way that may remain masked if the family of apps stays together," Zuckerberg wrote.
The revelations about the Silicon Valley tech czar’s fears about antitrust scrutiny came the same day the Wall Street Journal published a report that Zuckerberg called FTC chairman Andrew Ferguson in late March with an offer to pay $450 million to settle the nearly five-year-long antitrust suit ahead of the April 14 trial. The Journal reported that the offer was far from the $30 billion the FTC has demanded, and was also a fraction of the value of Instagram and WhatsApp.
Although it was filed under Trump, the FTC under the Joe Biden administration continued the suit which successfully survived Meta’s motion for summary judgment in 2024.
Matheson then questioned Zuckerberg on what he meant by “course correcting.”
The Meta CEO replied that “if the political direction over time” dictates that Instagram “needs to be separated for some reason,” then he wanted to have a strategy that creates the most value for the the app's users, “taking into account the direction that the politics seemed to be going at that time.”
— Neutralizing threats, buying time —
Evidence put forth by the FTC also showed Zuckerberg and his teams’ strategy on how to protect Facebook from emerging smaller rivals such as Instagram.
In a February 2012 e-mail, Zuckerberg and former Facebook Chief Financial Officer David Ebersman discussed “how much we should be willing to pay to acquire mobile app companies like Instagram and Path.”
The rivals were building networks that Zuckerberg found competitive, they had millions of users, fast growth, a small team of 10-25 employees and no revenue. The Meta CEO lamented how the businesses were “nascent” but the networks were established, the brands were already meaningful and “if they grow to a large scale they could be very disruptive to us.”
“This is a bad reason to do a deal. So for these two ideas specifically, I would ask you to find a compelling elucidation of what you are trying to accomplish… neutralize a potential competitor? Bad reason in my book since someone else will spring up immediately in their place,” Ebersman told Zuckerberg.
He advised the Meta CEO that the company will always have upstarts “nipping at our heels” and that they ought to win against competitors by having better products. Secondly, acquiring talent seems expensive and thirdly, integrating their products with Facebook’s to improve Facebook’s service “can be a very compelling reason” to acquire Instagram provided there is clear vision on implementation and product improvements in a reasonable timeframe.
Zuckerberg favored the reasoning where Facebook would be neutralizing a competitor and integrating Instagram’s products.
“One way of looking at this is that what we’re 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,” Zuckerberg wrote.
The Meta CEO suggested that the basic plan would be to “buy these companies and leave their products running” while, over time, incorporating the social dynamics they’ve invested into Facebook.
Zuckerberg reasoned that there are network effects around social products and a finite number of different social mechanics to invent.
“Once someone wins at a specific mechanic, it’s difficult for others to supplant them without doing something different. It’s possible someone beats Instagram by building something that is better to the point that they get network migration, but this is harder as long as Instagram keeps running as a product,” he wrote.
During cross-examination, Zuckerberg testified that the negotiations to purchase were as short as 5-6 weeks after the e-mail exchange with Ebersman. Instagram co-founders Kevin Systrom and Mike Krieger sold the company in April 2012. Instagram was growing so much faster than Facebook that the tech giant “had to buy them for $1 billion,” Zuckerberg wrote in an e-mail shown by the FTC today.
— Emerging threats from Asia —
In January 2013, Zuckerberg e-mailed Javier Olivan, the current chief operating officer at Meta, about another strategy to handle digital platforms nipping at Meta’s heels from other regions.
“I think we should block WeChat, Kakao, and Line ads. Those companies are trying to build social networks and replace us,” Zuckerberg said. “The revenue is immaterial to us compared to any risk.”
KakaoTalk is the most widely used messaging app in South Korea; LINE is now a commerce and communication online platform.
“And I agree we should use ads to promote our own products, but I’d still block companies that compete with our core team from gaining any advantage from us. I’d also keep blocking Google but otherwise wouldn’t extend the block to anyone else,” Zuckerberg wrote.
WeChat, Kakao, and Line were trying to expand into more full-fledged social networks, according to an internal Meta communication in May 2012. “Many mobile messengers aren’t just mobile messengers,” the document said. The companies were also attempting to run ads on Facebook.
“You were concerned that these companies would build social networks and replace a Facebook application as a social network, right?” Matheson asked Zuckerberg.
Zuckerberg acknowledged that in general, he was worried about the apps becoming a direct competitor to Facebook and “displacing” it in an “extreme version.”
In February 2013, Zuckerberg e-mailed Meta’s board of directors with an update about the company’s “biggest risks”.
“The biggest competitive vector for us is for some company to build out a messaging app for communicating with small groups of people, and then transforming that into a broader social network. Companies like Line and Kakao in Korea and Tencent in China are running this exact strategy and it’s working reasonably well. They haven’t expanded outside of Asia yet, but this is a big risk for us,” he wrote.
Matheson completed his cross-examination of Zuckerberg. Meta attorney Mark Hansen began direct examination of the witness which will continue tomorrow.
Please e-mail editors@mlex.com to contact the editorial staff regarding this story, or to submit the names of lawyers and advisers.