Zuckerberg v. Zuckerberg: Will the Real Facebook Founder Please Stand Up?

Facebook founder Mark Zuckerberg does his best Bill Gates impression dodging questions during Day 2 of the FTC's antitrust trial to break up Meta.

The Justice Department’s 1998 antitrust trial against Microsoft got airtime in yesterday’s opening statements in FTC v. Meta. And Microsoft was on my mind again during the second day of Facebook founder Mark Zuckerberg’s testimony. His lawyerly parsing of his own emails bordered on the infamous equivocation from Bill Gates in his deposition in the Microsoft case, played to great effect in the government’s opening statement in that trial:

The FTC picked up where we left off yesterday, digging into Facebook’s justifications for buying Instagram in 2012. It saved the best Zuckerberg exhibits for last. We’ve seen pieces of these documents cited in the summary judgment papers and in the FTC’s opening statement, but on Day 2 we got to see more documents and more of the documents. Because Zuckerberg writes so clearly, these chats and emails mark an early high point of the FTC’s case—proving up that Facebook’s intent was to stop Instagram from scaling as a rival social network. (And we’ll be covering how much intent evidence matters here later.)

Like yesterday, the FTC’s lead lawyer, Daniel Matheson, wanted to nail down that the juiciest parts of these emails were in fact referring to Instagram. Because the FTC doesn’t seem to have clear control (admissions from the deposition that they can use to “impeach” Mark Zuckerberg by showing he contradicted himself under oath), Matheson seemed like he had to “do it live” by asking Zuckerberg some questions for the first time.

The result? Frequent invitations by Zuckerberg to offer unasked-for context and answers bordering on the absurd.

Instagram Objective: “Neutralize A Potential Competitor”

The first email chain we saw this morning was between Zuckerberg and former Facebook CFO David Ebersman in early 2012. Zuckerberg used economic language to opine:

"One business question[] I’ve been thinking about recently is how much we should be willing to pay to acquire mobile app companies like Instagram and Path that are building networks that are competitive with our own . . . . The businesses are nascent but the networks are established, the brands are already meaningful and if they grow to a large scale they could be very disruptive to us. . . . Given that we think our own valuation is fairly aggressive right now and that we’re vulnerable in mobile, I’m curious if we should consider going after one or two of them. What do you think about this?"

In reply, Ebersman asked what Zuckerberg’s goals were in a potential Instagram acquisition—numbering a few, starting with “(1) neutralize a potential competitor”. Zuckerberg agreed:

"It's a combination of (1) and (3) . . . . The basic plan would be to buy these companies and leave their products running while over time incorporating the social dynamics they’ve invented into our core products. One thing that may make (1) more reasonable here is 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. . . . By a combination of (1) and (3), 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. Within that time, if we incorporate the social mechanics they were using, those new products won’t get much traction since we’ll already have their mechanics deployed at scale.”

Asked about the email, Zuckerberg parried, testifying first that he was looking at integrating key features from these apps. He explained the “scale” point as the “difference between having a feature in beta mode and having it rolled out widely.”

As Matheson tried to get him to say he agreed with Ebersman’s #1—neutralizing a competitor—Zuckerberg said that this email was simply “mapping my reasoning onto him”. (And later, we expect to see a subsequent email where Zuckerberg walks the “neutralize” language back.) Matheson asked what a “reasonable person” would think the emails meant, and Zuckerberg answered, “I’m not sure what a reasonable person would conclude.” Fair enough: the question called for speculation into the minds of others. And yet Zuckerberg’s answer made it sound like he is an unreasonable person. He won a “gotcha” moment but came across like a lizard from outer space. A couple of reporters in the press room were shaking their heads or laughing at this exchange.

Next, the FTC wanted Zuckerberg to say that he shut down development of Facebook Camera after agreeing to acquire Instagram, which would help prove the two were potential competitors. Matheson asked the simple question of whether Facebook, in fact, stopped developing Camera after announcing the deal. Said Zuckerberg: “I’m not aware of the chronology of that” but agreed Facebook stopped developing Camera.

He’d repeat the “I’m not aware of the chronology” line throughout the day in the style of Marco Rubio-bot, forcing the FTC to waste time by refreshing his recollection of dates by showing him more documents.

Out came an exchange with former COO Sheryl Sandberg, where Zuckerberg gave some “[e]xamples of things we could scale back on or cancel,” such as the “[m]obile photo app (since we’re acquiring Instagram)”. Discussing feedback for a third executive, Zuckerberg continued, writing that "Messenger isn't beating WhatsApp, Instagram was growing so much faster than us that we had to buy them for $1 billion. . . . That's not exactly killing it."

WhatsApp Objective: “The Biggest Competitive Vector For Us”

Then the FTC moved the questioning onto WhatsApp, starting with a January 2013 Zuckerberg email where he wrote, “I think we should block WeChat, Kakao, and Line ads” on Facebook—referring to messaging apps used mostly outside the United States. He explained that they were “trying to build social networks and replace us” and that the “revenue is immaterial to us compared to any risk.”

The next month, Zuckerberg sent an update email to Facebook’s board of directors, framed around a question from then-director Erskine Bowles about what Facebook’s “biggest risks are.” Here’s what Zuckerberg answered:

"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."

So Zuckerberg saw WeChat, Kakao, and Line as threats because they were developing broader social networking platforms from messaging apps. But what about WhatsApp? The FTC tied it together by playing this clip of Zuckerberg on CNN Money where he compares WhatsApp to WeChat, Kakao, and Line (starting at 1:33):

But here again, the man on the witness stand took the Bill Gates approach, testifying that “it’s possible I compared [WhatsApp] to those specific services” after the clip already played. The 20+ reporters in the media room started laughing. It was hard to believe he would try to quibble about something everyone just saw and heard. Matheson ran the clip a second time.

You might be wondering why these little things matter so much and how they help the FTC meet its burden of proof. They don’t directly. But they do go to credibility. And whether Meta’s claimed procompetitive justifications for acquiring WhatsApp and Instagram are pretextual is at issue; if the FTC shows the deals were anticompetitive, but Meta cannot offer a non-pretextual procompetitive benefit from them, then Meta will lose this case. And if the star defense witness can’t be trusted to give a straight answer on what he saw himself say 30 seconds ago, why should anyone credit his testimony about what he was thinking 12 years ago?

After lunch, Matheson returned to Instagram with a 2018 email from Zuckerberg to Adam Mosseri, the Head of Instagram who we saw at the tech tutorial. “I agree with you that Instagram will always need to focus on friends and can never exclusively be for public figures or will cease to be a social product,” Zuckerberg wrote. A good line for the FTC’s proposed “personal social networking services” (“PSN”) market and its focus on friends and family sharing.

Offering to Buy Snapchat

The FTC’s next module covered Facebook’s efforts to buy Snapchat. This part matters because we heard from Meta’s opening statement that Snapchat is a more distant competitor than TikTok, which the FTC says shouldn’t be in the market. And it bolsters the idea that WhatsApp could have evolved into a broader social networking service in a similar way. We see an email that Zuckerberg “delivered the offer to Evan”—referring to Evan Spiegel, Snapchat’s founder—and “he seemed to take it well.” Zuckerberg warned that “we should probably prepare for it to leak that we offered $6b for them and all the negative that will come from that." In another email, he laid out the competitive rationale for the offer:

"The growth of Snapchat Stories means that Snapchat is now more of a competitor for Instagram and News Feed than it ever was for messaging . . . . Snap Stories serves the exact same use case of sharing and consuming feeds of content that News Feed and Instagram deliver. We need to take this new dynamic seriously—both as a competitive risk and as a product opportunity to add functionality that many people clearly love and want to use daily."

In the end, we know that Facebook took the latter course, introducing its Stories feature as a copycat. Zuckerberg admitted that Snapchat connected friends (part of the FTC’s market definition) and, after lunch, agreed that "Snapchat was and is a competitor." So much for Hansen’s argument that Snap is too distant a rival for the PSN market to make sense.

The “Ad Load Tax”

With the acquisitions covered, the FTC moved on to showing how Facebook and Instagram continued to compete for users’ time and attention post-closing—helping show that Instagram was a nascent or actual competitor, part of what Chief Judge Boasberg said they would need to prove in his summary judgment opinion. In one Zuckerberg email, he said Facebook’s “best estimates are that had Instagram remained independent, it would likely be around the size of Twitter or Snapchat with 300-400 million MAP today, rather than closer to 1 billion.” While Meta’s scale might have helped Instagram grow, that makes them seem like they would have been a viable independent competitor.

In one 2018 email, Zuckerberg wrote:

“I think we’re badly mismanaging this right now. There’s absolutely no reason why IG ad load should be lower than FB at a time when . . . we’re having engagement issues in FB. If we were managing our company correctly, then at a minimum we’d immediately balance IG and FB ad load . . . But it’s possible we should even have a higher ad load on IG while we have this challenge so we can replace some ads with [People You May Know] on FB to turn around the issues we’re seeing.”

Then, another 2018 email, this time from Zuckerberg to the Board of Directors:

"The relative weakness of the Facebook app requires us to rebalance how our apps support each other. The Facebook app has historically driven most of Instagram's growth through bookmarks and other links, and has born[e] a higher ad load tax."

Matheson zeroed in on the “ad load tax” language, as putting these emails back to back suggested that users felt that more ads were a bad thing, but that cutting down ads would help boost engagement on Facebook. Zuckerberg testified instead that “over time, the quality of the ads as people report them to us has approached the quality of the organic content.” Of course, the emails suggest the opposite and support the FTC’s “ad load” theory that ads are a tax or price, not something equivalent to content from family and friends. That helps the FTC show a “price” increase or quality decrease in the form of more ads, an anticompetitive effect from these mergers. And it helps them define their PSN market.

“People don’t come to Facebook or Instagram for the ads,” Matheson asked. Zuckerberg would only agree that that was “generally right.”

Zuckerberg Considered Spinning Off Instagram

A high point of the FTC’s examination of Zuckerberg came in the form of a stunning 2018 email—notated “Confidential - do *not* share beyond this group”—from Zuckerberg to COO Sheryl Sandberg, Chris Cox, and other senior Facebook executives. In it, he contemplates spinning out Instagram, noting that antitrust regulators may force the company to do so anyway and that companies often do better broken up:

“I am growing more convinced that we are approaching the family strategy incorrectly—especially around Instagram. While we believe our current trajectory will yield strong business growth over the next 5 years, I worry it will also undermine our global network effect, erode our corporate brand, impose an increasingly large strategy tax on all our work, and then over time we may face antitrust regulation requiring us to spin out our other apps anyway. . . .

As calls to break up the big tech companies grow, there is a non-trivial chance that we will be forced to spin out Instagram [and WhatsApp]. . . . 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. . . . [W]e may later regret not course correcting sooner in a way that may remain masked if the family of apps stays together."

You rarely see emails from senior corporate executives—let alone the CEO—openly wondering whether they are violating the antitrust laws, let alone that they may be broken up. Typically, these conversations might seek legal advice and be privileged from discovery. But it didn’t seem like Zuckerberg was seeking any legal advice; he was just letting it rip in clear and conspicuous language, as in his other emails. This email might have more utility in helping the Court decide an appropriate remedy, rather than establish liability, but it was a dramatic moment in the morality play of trial that made Zuckerberg look like he knew that holding onto Instagram was wrong. And not only that it was wrong, but that it might not be a good business decision regardless to hold onto it.

Finally, the FTC put up a few more exhibits to support its PSN market. One was an internal Facebook report again using the language of economics to distinguish social networking apps from other apps:

“The most important concern should be network effects . . . . when you use an app less, that makes it less appealing to other people, and at certain times and places those effects could be very large . . . . We should expect tipping points in social apps. As an extreme simplification, social networks have two stable equilibria: either everyone uses them, or no-one uses them. In contrast, nonsocial apps (e.g. weather apps, exercise apps) can exist [somewhere] along a continuum of adoption. The binary nature of social networks implies that there should exist a tipping point, ie some critical mass of adoption, above which a network will organically grow, and below which it will shrink.”

And we saw a document previewed from the FTC’s opening statement yesterday, plus an earnings call transcript, undercutting Meta’s theme that it competes with LinkedIn, Nextdoor, Pinterest, and Twitter based on their design features:

Meta’s Turn with Mark

There wasn’t much time left in the day for Meta’s examination of Zuckerberg, but it scored a few quick points. Zuckerberg testified that most time spent on Facebook today is watching video, which helps Meta argue that it competes with YouTube and TikTok. Zuckerberg said he had never heard of the “personal social networking services” term before this case, nor had he ever heard of the app MeWe, which is in the FTC’s PSN market. He rattled off virtually every company listed as a competitor in Meta’s opening, but focused on the three biggest ones—TikTok, YouTube, and iMessage (also named were Twitter/X, LinkedIn, Nextdoor, Snapchat, Signal, and Telegram). And he mentioned how users switch between apps when some go offline.

Zuckerberg’s testimony should conclude tomorrow. Up next are former COO Sheryl Sandberg and some pre-recorded video depositions.

Potpourri

• Sheryl Sandberg wanted to lean in on board games, writing Zuckerberg in the “not exactly killing it” email that “I want to learn settlers of catan too so we can play.” Mark replied, “I can definitely teach you Settlers of Catan. It's very easy to learn.” Time magazine reported in March 2013 that Zuckerberg had recently taught Sheryl Sandberg’s family how to play the Klaus Teuber-designed tabletop game after all. Meta whistleblower Sarah Wynn-Williams claimed that employees lost to Zuckerberg at Settlers on purpose; he denied the allegations.