Antitrust

Meta attorney Kevin Huff suggests that Instagram benefited largely from cross-posting to Facebook prior to the acquisition, but Systrom says it mostly cut the other way. “We helped Facebook make their app more engaging by posting photos over to them,” he says. After Huff shows him a 2012 email Systrom sent to Zuckerberg crediting Facebook cross-posting for Instagram’s success, he asks if Systrom was lying to Zuckerberg at the time. Systrom answers with a stern look and a single word: “Sir.”

He is now being questioned by Meta’s attorney and says that “network effects make it very difficult to displace large incumbents, including Instagram.” The question for Systrom is “how big” rivals like Snapchat and TikTok “could have gotten” absent Meta’s network effects, which disincentivize people from leaving a service that many of their friends are already on.

A 2018 document lists the features that Meta integrated with Instagram, including cross-posting with Facebook, and explains how they impacted each app. The overall effect is described as increasing Instagram’s active users by millions each year, while the impact on Facebook was described as “neutral.” Systrom says Zuckerberg decided to cut these integrations that largely benefited Instagram.

The Meta CEO’s reaction to Instagram’s growth, as Facebook’s growth plateaued, stirred complex feelings in him, Systrom says. “My experience of him is that he was always very happy to have Instagram in the family,” he testifies. “But also, I think as the founder of Facebook, he felt a lot of emotion around which one was better, meaning Instagram or Facebook, and I think there were real human emotional things going on there.”

Zuckerberg had mixed feelings about Instagram over the years, depending on how it was impacting engagement on Facebook, Systrom testifies. “Depending on the temperature of that feeling, we would get more investment or less investment.” Systrom believes that Zuckerberg “was not investing in Instagram” because he saw it as a threat to Facebook.

Meta dispatched a few members of its growth team to work with Instagram on growing after the acquisition, Systrom testifies. But then, he says, “I woke up one day and they were gone.” Systrom complained in a 2014 message to another Instagram executive that “no startup would simply pull growth people,” and he says on the stand that if Instagram were still independent, “the probability of that happening is very close to zero.”

Systrom says he received “zero” of the trust and safety headcount allocation Meta created after the Cambridge Analytica scandal, and was instead told to work with Meta’s central team. “I felt that was not appropriate given the scale of Instagram,” he testifies. “To get zero of some of these major proclamation investments felt like there was something going on there.”

After the acquisition, Systrom says he informed his board that Twitter had decided to restrict access to part of its API, which allowed people to find their Twitter friends on Instagram. A Twitter executive “made it clear that this is in direct retaliation to Facebook cutting off the same API access to Twitter. I can only imagine Jack + Dick are also not very happy about the acquisition.”

Systrom recounts talks he had with each of these companies in 2011 and 2012. He says he had at least ten meetings with Twitter executives about their acquisition interest, including a “sushi dinner” with its then-CEO, Dick Costolo. Google seemed more coy, but Systrom suspected the company was also interested. Talks with Apple never really wrapped up neatly, he says.

He says he didn’t feel pressure to monetize right away because investors placed so much emphasis on growth to secure the strong network effects of a large user base. Even still, in early funding rounds, he pitched a mock-up of what advertising on Instagram could eventually look like, which he says is “exactly what you see when you open up Instagram today.”

Systrom testifies that the app managed to stay online before Meta bought it, and that he was already dealing with spam and problematic content filtering. He contrasts this with Twitter, which became known for its “fail whale” page when the service was down. This undermines Meta’s pro-competitive justifications for the deal, which argue that it improved Instagram for consumers by making it safer and more reliable.

Systrom confidently answers that building out video, messaging, and photo tagging features would have been entirely possible without Meta, and that he already had plans to pursue some of those features prior to the acquisition. “It was not necessarily difficult, and there were plenty of other companies that had functionalities similar to this,” he says. When Meta’s attorney objects that this is speculation, Judge Boasberg overrules him, saying, “I feel that in our but-for world discussion, it’s all going to be speculation.”

“The first slowdown that we had was maybe a year into being at Facebook,” Systrom testifies. The FTC is making the point that Instagram’s rise was unique and validated before the social media giant acquired it. After winning “App of the Year” from Apple, Systrom recalls that new registrations “skyrocketed.”

At launch, Systrom says the app’s growth was “exponential, unstoppable,” with 25,000 users registering in the first day. It was growing so quickly in the early days that, in his eyes, it didn’t even matter exactly how many active users were on the platform; he just had to keep up with the demand, he testifies.

We’re going all the way back to 2009, when Systrom and co-founder Mike Krieger were working on a location check-in app called Burbn, which they later pivoted into the photo-sharing app Instagram. Systrom says Instagram’s October 2010 launch occurred as the Apple App Store was making it easier for developers to get started, and advances in smartphone cameras, particularly with the iPhone 4, had significantly improved photo quality.

The FTC just called the former Instagram CEO as their next witness to kick off the sixth day of trial. He’s likely to be testifying all day about his experience selling to Meta and then working there for six years.

The court has wrapped for the day after it was briefly closed to play some sealed testimony from one of the video depositions. Instagram co-founder and former CEO Kevin Systrom is expected to testify for most, if not all, of the day tomorrow.

Amin Zoufonoun, a former Meta corporate development executive, testifies in a video deposition about “spirited debates” over whether mobile messaging could threaten Facebook’s flagship app, though he doesn’t specifically recall colleagues seeing it as a threat. He remembers colleagues wondering, for example, if messaging apps could “use that as a Trojan horse wedge to get into the social networking space.”

Botha says that, if he had suggested a $1 billion valuation for Instagram at the time, he probably wouldn’t have gotten support from his partners. It wasn’t clear it’d be worth that much, he says.

Botha recalls expressing to Instagram’s founders that if they wanted to get their “payday” from Meta, that’s their prerogative. But, he recalls saying, “if your ambition is to build an independent company, then you should partner with people like us.”

Botha says he was “giddy” to get the chance to invest in the app in 2012. He recalls it was less than a year old and already had millions of daily users. Sequoia didn’t get to invest as much as it wanted because so many other investors wanted a piece of the startup. He compares it to how he felt investing in YouTube: “This felt like one of these companies.”

We’re watching pre-recorded video testimony from Sequoia’s Roelof Botha, who spoke with attorneys in this case in January 2023 about his firm’s investment in Instagram in 2012, just before Meta acquired it. Botha describes the app’s rapid growth and resonance with users at the time, stating that Sequoia likely would have been able to help Instagram obtain the resources it needed to scale had Meta not intervened.

Arora says that WhatsApp’s founders were “very clear. They were not going to do it.” Meta’s attorney is getting him to pour cold water on the FTC expert’s testimony that WhatsApp would have likely ended up selling ads despite the founders’ wishes. “I would have said it’s not likely,” Arora testifies.

Arora says it was pretty customary to get such paperwork for an acquisition to ensure exclusive talks for a set period of time. After reviewing emails from the time, he testifies that Meta requested the agreement after they agreed to a deal price, but that WhatsApp did not sign it.

Neeraj Arora, who worked on an acquisition offer for WhatsApp at Google in the early 2010s before later joining the startup, is now testifying for the FTC. He’s discussing a 2010 Google presentation outlining the company’s strategic rationale for attempting to acquire the app. One of the goals listed was to “supercharge our mobile social initiatives.”

Meta’s attorney presents Rim with translated posts from his personal blog, originally written in Korean. In a November 2024 post about the Justice Department’s remedies proposals for Google’s search business, Rim wrote (according to a certified FTC translation), “admittedly, it can be difficult to imagine we are victims of Big Tech, who have made our lives so much easier.” Rim disagrees with the translation of “admittedly,” while Meta’s attorney assures him he has other certified translations.

A chart in Rim’s report comparing Instagram and WhatsApp’s engagement before and after their acquisitions is misleading, an attorney for Meta suggests in his cross-examination. The chart includes figures based on US user numbers in one color and global numbers in another. It appears that the apps had higher engagement prior to being acquired. The Meta attorney points out that the chart doesn’t distinguish between domestic usage and global usage, where engagement was lower.

That’s how Morgan Stanley proposed pitching the app to Facebook in a deck when the bank was seeking to be WhatsApp’s advisor for a sale, according to Rim. “WhatsApp could determine the social network winner on mobile,” the bank wrote. “Google’s resources combined with WhatsApp’s user base and traction could create the predominant social network on Mobile (surpassing Facebook).”

Boasberg asks Rim why he thinks WhatsApp would have eventually generated revenue despite the founders’ initial resistance to an ad model. One of the app’s investors, Jim Goetz, had earlier testified that it was “laughable” to suggest he could convince the founders to adopt ads.

Rim says that, eventually, all startups need to monetize their product. “You cannot lose money forever,” he says, even as Meta CEO Mark Zuckerberg testified, WhatsApp’s founders resisted advertising and had limited ambitions. Rim says, “It’s common that founders change minds over time, especially if you are losing a lot of money, then you have to face reality.”

The FTC’s expert witness Jihoon Rim, who previously ran WhatsApp competitor Kakao, says both apps’ growth pre-acquisition were “exceptional.” On any given day, more than 60 percent of monthly users would be active, and both apps’ userbases grew very quickly. Rim says that WhatsApp’s lead investor had called it one of the highest-engagement apps they’d seen — higher, even, than Facebook.

It’s the fifth trial day in the antitrust case over its alleged social media monopoly. The big witness this week is Instagram co-founder Kevin Systrom, who’s set to testify tomorrow. The Federal Trade Commission just called its first expert witness, Jihoon Rim, an New York University professor who’s taught a course about founding a startup and worked as CEO of messaging app company Kakao.

If you’ve been watching our Meta antitrust coverage and are wondering what’s going on today: break time! We’ll be back in DC with Judge Boasberg — who has, you may recall, a lot happening right now — on Monday.

Meta and the FTC point to different parts of Google’s filings to international regulators to reinforce their views of the market. In an Australian filing where Google was attempting to avoid a social media probe, it stated that even though digital products can have overlapping audiences, “there are a number of use cases that only social media platforms such as Facebook can satisfy.” It earlier told European regulators that it competes with social networks for users.

The FTC presents Filner with a post-mortem document about YouTube’s 2014-2019 experiment with adding social features, such as in-app messaging. “We learned that taking a page from social apps and bluntly asking for contact access in the YouTube app would likely lead to user backlash and rejection,” the document reads. “Users who probably hadn’t batted an eyelash about providing their contacts to Snapchat didn’t see YouTube as a relevant app to share contacts with.”

Filner is currently a senior director of product management at YouTube. The FTC appears to be attempting to demonstrate that YouTube serves a distinct market from Meta’s apps and is not a direct competitor in the “personal social networking” market it has defined for this case.

Goetz says the $19 billion deal was reasonable because, like other companies that get acquired early on, “it looks like a high price, but with the benefit of time, it’s very clear that these young private companies had the potential to emerge into independent public companies.” The FTC has contended that Meta was willing to pay what it did because it was trying to get a potential competitor off the market.

Goetz is supporting Zuckerberg’s earlier characterization of the WhatsApp founders’ “disdain” for advertising and adding social features. He says that, before WhatsApp was acquired, Sequoia partners suggested launching a new app with social media features as a potential business model, but the founders wouldn’t have it. “We were quickly shot down and dismissed,” Goetz recalls. “They were very clear.”