Meta Platforms CEO Mark Zuckerberg was so "worried" and even thought it was "scary" to see Facebook being "so far behind" Instagram over its camera features and wide network in 2012 that he solicited advice on paying a lot of money to buy the small, yet established competitor, according to internal documents shown today during the US Federal Trade Commission's monopoly trial against Meta.
Meta Platforms CEO Mark Zuckerberg was so "worried" and even thought it was "scary" to see Facebook being "so far behind" Instagram over its camera features and wide network in 2012 that he solicited advice on paying a lot of money to buy the small, yet established competitor, according to internal documents shown during the US Federal Trade Commission's monopoly trial against Meta.The Facebook founder took the witness stand today as the FTC's first witness in a trial that seeks to hive off the company's 2012 and 2014 acquisitions of Instagram and WhatsApp, respectively (see here and here).
"I wonder if we should buy Instagram, even if it costs ~$500m," Zuckerberg said in a February 2012 e-mail to colleagues. "Right now they seem to have two things that we don’t: a really good camera and a photo-centric sharing network.”
The executive described how he took a photo that morning from the native camera and uploaded it to Facebook and it looked "so low quality compared to the Instagram shots I see."
Zuckerberg said that the company could theoretically "go build this technology."
"But I’m worried we’re so far behind that we don’t even understand how far behind we are and that this is going to be a huge amount of work... Given this, I worry that it will take us too long to catch up, if we even will,” he said. “And regardless, their brand is established as the awesome mainstream camera, so even if we catch up on features, they’re still the awesome iPhone camera app.”
Zuckerberg suggested that Facebook's in-house project to build a standalone photo-sharing app — known as Facebook Camera — might be a good first step to compete against Instagram. "But we'd be very behind in both functionality and brand on how one of the core use cases of Facebook will evolve in the mobile world, which is really scary.”
The fear of those hurdles to outcompeting Instagram was “why we might want to consider paying a lot of money for this,” Zuckerberg said. “What do you guys think?"
Earlier in the trial, FTC attorney Daniel Matheson showed an exhibit in which Zuckerberg told Meta's chief product officer Chris Cox in 2011 that "Instagram seems like it’s growing quickly" — racking up 2 million users and 300,000 daily photo uploads in a mere three months. "That’s a lot. We need to track this closely,” Zuckerberg said at the time.
Matheson quizzed the Silicon Valley executive about being scared of Instagram years ago, which eventually led to the acquisition of the company for $1 billion in 2012.
Zuckerberg sought to defend the e-mail from 13 years ago, testifying that the company was close to an initial public offer at the time, and as they were about to be more liquid, the management team started thinking about whether the company should use some of its capital to “acquire different tools.”
"It was one of the first times in the company's history where we both had enough capital and it was going to be liquid and probably attractive to a lot of folks, where instead of just building things, we could do a more traditional build-or-buy analysis... as we wanted to kind of discuss how we wanted to enter different spaces," Zuckerberg testified.
The Meta CEO said he was merely explaining why it might be useful to consider buying Instagram, rather than have Facebook expend its own effort to enter the photo-sharing space.
But when Matheson persisted, Zuckerberg said he was analyzing Instagram's value back then "with a conclusion that this could potentially be scary, but I don't know if I'm... I'm not sure if I read this as saying, 'Oh, I was really scared at the time' or whatever."
Zuckerberg, who was on the stand for roughly three hours today, is only halfway through his testimony with Matheson to complete his direct examination.
— An ‘intern project’ —
Matheson devoted considerable time during his questioning of Zuckerberg attempting to cast doubt on Meta’s ability to effectively compete against Instagram.
The company had launched project “Snap,” a codename for the company’s effort to launch Facebook Camera, a standalone photo-sharing app. But during one round of questioning, Zuckerberg confirmed that Instagram’s rapid growth was the impetus behind a June 2011 internal e-mail introduced into evidence today.
“What is going on with our photos team?” Zuckerberg asked. “...it seems like we have a really critical situation to fix here. We really need to get our act together quickly on this since Instagram is growing so fast.”
Mike Schroepfer, former chief technology officer of Meta, responded that part of the problem with getting a competing standalone photo app out quickly was because “we've got 5 interns ... building the standalone photos app as an intern project.”
Zuckerberg acknowledged that the photos team lacked experience with app development on Apple’s iOS mobile operating system, and management decisions kept more experienced engineers off the project.
In another exchange, Zuckerberg outlined the “big strategic risk for us if we don’t completely own the photo space.”
“If Instagram continues to kick ass on mobile or if Google buys them, then over the next few years they could easily add pieces of their service that copy what we’re doing now, and if they have a growing number of people’s photos then that’s a real issue for us,” Zuckerberg wrote in a September 2011 exchange.
“They’re growing extremely quickly right now. It seems like they double every couple of months or so, and their base is already 5-10 mn users,” the e-mail said.
Zuckerberg evaded a line of questioning about whether he considered Instagram’s competitive threat as one that extended beyond merely photos.
— Post-merger worries —
Early on, Meta’s plan was not to kill Instagram, but to simply “keep their product running” while building the app’s camera features into Meta’s platforms, Zuckerberg said in a February 2012 exchange with other executives.
“On merging, I think what we’d do is keep their product running and just not add more features to it, and focus future development on our products, including building all of their camera features into ours,” he wrote. “By not killing their products, we prevent everyone from hating us and we make sure we don’t immediately create a hole in the market for someone else to fill but all future development would go towards our core products.”
Zuckerberg wrote this after Schroepfer posed what he called a “big question” — would Instagram and Facebook’s networks be merged, or not?
“We can catch up technically if we put some good people behind it,” Schroepfer said. “However, the network is even more concerning to me.”
— Acquiring Path —
The FTC put forth more hot docs which revealed that Zuckerberg and his colleagues considered Path, a mobile social network, as a competitor to Facebook alongside Google+.
Path, which took a more focused approach to social networking compared to Facebook and included a narrow set of connections, closed operations in October 2018.
Matheson questioned Zuckerberg about a message he wrote in 2012, which said, “I’m getting a bit more worried about Path. Out of all the new social startups, they’re the only one that goes right to the core of what we’re trying to do around identity and friends sharing.”
“Theoretically we could survive FourSquare, Quora, DropBox, Instagram etc growing quite a bit but if Path grows and isn’t deeply wired into Facebook then that would be a big problem for us. (Instagram is probably next on the list since photos is so core, but their social dynamics are a bit different),” the message continued.
In another written exchange, former Facebook executive Samuel Lessin said, “I actually think that there is a serious argument to be made that we should buy Path, Pinterest, Instagram, Evernote, and whoever else... are doing great things right now.”
Zuckerberg replied, “I’ve thought about buying Path and Instagram, but less so about Pinterest and things like Evernote, the reason for that is that Path and Instagram go to the core of what we’re doing today.”
During questioning, Zuckerberg admitted that even though Path ostensibly focused on sharing between close friends which had an “almost negative” network effect, the now-defunct platform was “a pretty direct kind of social media competitor across a lot of different use cases.”
"Now, Path was a mobile application that was launched only on mobile devices at the time, right? It's fair to say that Facebook at this time was struggling with its mobile experiences offered to users, right?" Matheson asked.
Zuckerberg admitted they were struggling. "We were navigating this transition from being primarily a desktop web service to one that would soon become primarily mobile."
The Meta CEO will resume his testimony tomorrow.
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