Meta Platforms CEO Mark Zuckerberg said today it is "extremely unlikely" that Instagram would have achieved the enormous scale of 2 billion users had Meta not acquired the startup in 2012, an argument striking at the US Federal Trade Commission's claim that Instagram could have flourished independently to achieve the same massive scale.
Meta Platforms CEO Mark Zuckerberg today said it is "extremely unlikely" that Instagram would have achieved its enormous scale of 2 billion users had Meta not acquired the startup in 2012, an argument striking at the US Federal Trade Commission's claim that Instagram could have flourished independently to achieve that same scale.The Silicon Valley tech executive was back on the witness stand for a third consecutive day as trial in the FTC’s monopolization lawsuit against Meta picked up pace. Sheryl Sandberg, the company’s former chief operating officer and a lieutenant to Zuckerberg in the tech giant’s early days, also testified.
An FTC attorney questioned Sandberg about confidential e-mails she wrote years ago to the company’s leadership, including one in which they discussed Instagram’s solid growth and user engagement metrics in April 2012, which led her to declare at the time that “this makes me want Instagram more.”
Mark Hansen, attorney for Meta, started the day by quizzing Zuckerberg about the company’s acquisition of Instagram and what a hypothetical world would have looked like had Facebook — now Meta — not purchased the app 13 years ago.
"You talked in some detail about some of the benefits you provided to Instagram after the acquisition. The FTC claims here that if you hadn't acquired Instagram, all of the good things that Instagram has achieved since 2012 would have happened anyway. Do you believe that?" Hansen asked.
"I think it's extremely unlikely," Zuckerberg said. "Obviously, it's hard to speculate about what would have happened but... just as a practical fact, aside from Facebook, every other major service that's gotten to the scale of a billion people has been owned by a different parent company that's helped clear the way in some ways."
The Meta Platforms co-founder listed out a handful of examples: TikTok is owned by ByteDance, YouTube is owned by Google and Instagram is owned by Meta. "It's just very hard to build something that reaches that scale."
ByteDance did not buy TikTok itself; the video-sharing app was initially created by ByteDance in September 2017 as a foreign version of its Chinese app called Douyin. ByteDance acquired Musical.ly, a rival short-form video app in 2017 which then merged with TikTok in 2018.
Explaining his reasoning for why a startup wouldn't be able to reach that scale independently, Zuckerberg said the company would need to keep innovating, and not just in the product. Startups need to solve a lot of technical, organizational and legal problems.
"For how good Instagram is today, it's sort of hard to imagine that that would have been the outcome," Zuckerberg said, "but it's certainly within the realm of possibility."
"The likely outcome for any one of these companies was somewhere between not existing anymore today to being at the upper bound... maybe hundreds of millions of people using it... So, can I say that it would have been impossible for them to have done it without us? No, obviously not. I mean, we did it with Facebook, right? But, does it seem like it would have been likely? I think, extremely not."
The tech mogul is the first witness in the FTC's monopoly lawsuit against Meta which is being heard at the US District Court for the District of Columbia. The FTC is seeking to unravel the more than decade-old acquisitions made by Meta. Zuckerberg bought photo-sharing app Instagram for $1 billion in 2012 and paid a whopping $19 billion for messaging app WhatsApp in 2014. Both companies were startups with very few employees and no revenue but were increasingly witnessing popularity among mobile phone users.
In its complaint, the FTC alleges that Facebook was floundering as it transitioned from desktops to mobiles in the 2010s. The company made efforts to “de-risk” this transition through a strategy to "buy or bury" innovators who emerged as potential threats and who Facebook could not out-compete in the new mobile environment.
— Wanting Instagram, paying ‘way too much’ —
Susan Musser, attorney for the FTC, quizzed Sandberg about a 2012 e-mail in which senior Facebook executives discussed data that pointed to very strong growth at Instagram in the first quarter of that year.
Instagram’s registered users had doubled to 30 million at the time, with total photos uploaded by users having more than doubled to one billion. The e-mail stated that while Facebook wasn’t that far ahead on the iPhone, the “likes” metrics were “especially noteworthy” as Instagram had almost as many “likes” per day as Facebook on one-fourth of the content.
“So, this shows that Instagram was growing at that time and that even though Facebook had more users, Instagram was getting almost the same level of engagement on some metrics. Is that right?” Musser asked. Sandberg replied in the affirmative.
“This makes me want Instagram more,” she wrote to Zuckerberg in April 2012.
The e-mail conversation took place five days before the app was purchased from co-founders Kevin Systrom and Mike Krieger for $1 billion.
“Just want to gut check that this is reasonable. Do you think it’s way too much?” Zuckerberg wrote to Sandberg prior to the acquisition.
“Yes of course it’s way too much,” Sandberg wrote back. “But we knew that.”
When Sandberg was later cross-examined by Meta lawyer Kevin Huff about the exchange, she said, “I think I was wrong. Like, very wrong.”
“Why?” Huff asked.
“Because this might have been one of the more valuable acquisitions. I think I didn't understand what Mark understood,” Sandberg said. As a product leader, Zuckerberg’s vision was that if Meta put Facebook resources behind Instagram, they could grow it to “be as big as it is today, as compelling as it is today, and eventually monetize it,” she said.
“Clearly, I didn't understand that, but Mark did,” Sandberg said. “I don't think anyone today would say that we paid too much for Instagram.”
— Network effects —
Earlier during Zuckerberg’s testimony, US District Judge James Boasberg stepped in to question the Meta CEO about network effects on a social networking app.
“Is it fair to say that network effects are less significant now because of people's ability to share content outside of a network via messaging or otherwise?” the judge asked.
The tech executive said yes, explaining that’s because any social app now that enters the markets with just a handful of people can very easily import the contacts and build out from there.
Zuckerberg cited a recent example in which artificial intelligence company OpenAI “which is not really in the social space” built an AI filter where people can take an image and turn it into an anime image. “That just went viral across all of social media, and they've added hundreds of millions of people to their services.”
“Maybe I’ll ask more specifically: how much does it matter if your friends are on a particular platform, if you can share content out of it, you can send content and share content out of that? Why does it matter that your friends are there?” Boasberg asked.
The Meta CEO replied that Facebook and Instagram used to be much more about connecting with friends, but the apps have now evolved to be “discovery engines” where the primary purpose is to highlight interesting content. This is how YouTube grew because it didn't necessarily emphasize connecting with friends within its platform.
Sandberg, too, was queried about the power of network effects. Much of that questioning revolved around a “roadshow narrative” document that was created by the company as it was drumming up hype for its initial public offering in 2012.
“The more people that use the service, the more valuable it becomes,” the document said in describing why “Facebook is a strong network effects business.”
The document also included a concrete example of the power of network effects, highlighting early results from Google’s rollout of Google+.
“Google is a formidable company with great engineers and plenty of resources,” the document said. One measure of user engagement and advertising across various platforms showed that Facebook enjoyed 375 minutes of time spent per user per month, compared to “3 minutes” for Google+.
“Google+ had great engineers. What it didn't have was what Facebook had, a developed friend network?” FTC attorney Susan Musser asked Sandberg and cited her previous employment at Google.
Sandberg stumbled in her response, saying she “didn’t have specific knowledge of that.”
Later, when Huff cross-examined Sandberg on why network effects did not prevent the rise of Snap and TikTok, Sandberg said that innovation and putting “an incredibly compelling product” into the market is required for success. Friends and family sharing had become less important for Facebook over the years, she said.
“When TikTok came out, Meta did not have a particularly compelling or any short form video, but TikTok was taking so much market share and taking so much engagement — particularly among a very important demographic — that Meta had to build that product, and built Reels,” she said.
Whether Meta faces competitive pressures is a key aspect of the monopolization suit. The FTC alleges a market for “personal social networking services” in which Meta is dominant thanks to its “bury or buy” strategy. But the company argues that Instagram, Facebook and WhatsApp face competition from TikTok, YouTube, X, iMessage and many others.
Sandberg will be back on the witness stand tomorrow.
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