Will the Government Break Up Instagram and Facebook? A Conversation With ‘No Filter’ Author Sarah Frier

The Federal Trade Commission is preparing an antitrust lawsuit against Facebook, and Instagram is in its sights. The agency is poised to revisit Facebook’s 2012 acquisition of the popular mobile app, and a long fight may await. Bloomberg reporter Sarah Frier wrote the most in-depth account of Facebook’s Instagram acquisition in her April 2020 book No Filter. She joins the Big Technology Podcast to tell the story of what happened and what may be in store next. Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Alex Kantrowitz?

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• 0:43Alex Kantrowitz?

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• 1:03Alex Kantrowitz?

  Okay, wait, what's your dog's name again?

• 1:05Speaker 01

  Marlo.

• 1:06Alex Kantrowitz?

  Marlo, okay, we'll have to give Marlo a shout out if he starts barking during the episode.

• 1:11Speaker 01

  We will.

• 1:24Alex Kantrowitz?

  Hello and welcome to the Big Technology Podcast, a show for cool-headed nuanced discussion of the tech world and beyond. Our guest today is Sarah Frier, a Bloomberg reporter who covers Facebook and is the author of the hit book, No Filter: The Inside Story of Instagram. And when you finish listening today, I think you're going to see why Facebook is in for some real trouble with the Federal Trade Commission from an antitrust standpoint. But first, let's welcome Sarah to the show. Sarah, welcome to the Big Technology Podcast.

• 1:52Speaker 01

  Alex, thank you for having me. I'm really excited to be here.

• 1:55Alex Kantrowitz?

  Yeah, it's great having you on. I hope we'll be able to have you on multiple times. I was looking forward to getting you on the show. I felt like this was a particularly opportune week, but I'm thrilled to have you here.

• 2:05Speaker 01

  It is, it is a, you know, we got the rain going. It's a perfect time for a podcast.

• 2:11Alex Kantrowitz?

  That's right. That's right. So you've been with Bloomberg, you've been a reporter at Bloomberg for a while now, almost a decade, and you joined in 2011. So I just want to start off with a question. Like, when you joined, did you think your beat was going to turn into something that's going to be dealing with like election integrity and antitrust that sort of changed from what you originally anticipated?

• 2:31Speaker 01

  I, I really think that the beat has completely transformed. Like, my job is, is 100% different than it was when I was covering Facebook's IPO. I remember the big question around Facebook's IPO was, are they ever going to make money off of mobile advertising? And the big question around the Instagram acquisition was, why did they pay a billion dollars for this app that had only 25 million users and no revenue and 13 employees? And so I think the questions, just for many years, I maybe even up until the, the 2016 presidential election, those questions certainly started taking shape before then.

• 3:11Speaker 01

  The questions were about business, right? It was, it was, how's the revenue trending? Are, are they getting into this new business line? Like, how are they competing with Google? How are they competing with Twitter? And the, the thing that I really wanted to focus on in my book, it's, those kinds of questions are, are not the most fundamentally important ones anymore. This is now a story of the new infrastructure of our society. These companies are not only shaping how we interact online, but especially in the case of Instagram,

• 3:52Speaker 01

  how we behave in the world at large, what we value, what we buy, who we, how we hang out with people, how we celebrate, what we aspire to, how we build businesses, like, all of those things are wrapped up in, in the product decisions that are made in, in Menlo Park, California, at Facebook, or, you know, in San Francisco, Twitter, in this case, during the COVID.

• 4:18Speaker 01

  Pandemic, we have people making

• 4:21Alex Kantrowitz?

  Right.

• 4:21Speaker 01

  From home. Um, I, I just think that the, the scope of the beat as, as you've experienced has really um, become almost like, like covering government entities, but in some ways more powerful.

• 4:38Alex Kantrowitz?

  Yeah, there, it feels like there's been like a few stages, like the first was, oh, these companies are interesting and their products seem fun. What's going on here? And the second was, there's like the second stage, which was, these companies just keep getting bigger and bigger and bigger. And like the rocketing growth, I think was uh, the interesting thing, because we knew that there was going to be an impact on society, but didn't quite know what. And I think we're now fully into the third stage, which is the impact on society. And you know, when you're watching these companies, you end up being confronted with some more interesting questions in terms of what's the actual impact on the way that we live, what's the app impact on competition, uh, and what's the impact on the world at large?

• 5:20Alex Kantrowitz?

  And so it does lend itself to more interesting questions, which is both an adventure, uh, it can be exhausting at times, because I feel like you always have to learn something new. Uh, but it's, it's can be, it's, I think it's the most fascinating beat in the world right now. So it's good to be able to have you on and, and talk about, about some of the more pressing issues that we're going to see moving forward.

• 5:43Speaker 01

  Thank you. Yeah, I think it's, it's really important for users of these products to understand the, the structure and motivations of the people behind them, because then you can, you can kind of peel back the layers of what's happening and understand why our political discussion is as fraught as it is, why um, why people are, are you seeing this sort of divisive behavior and in politics and beyond, it's all comes down to the decisions that, that Facebook has made and Twitter has made and Google has made uh, about how to build.

• 6:23Alex Kantrowitz?

  Yeah. And so you wrote No Filter. First of all, let's just talk about the title. It's an amazing title. Was that something that was evident to people from the start? What you were getting at sort of no filter? Obviously, people, when they tag their photos, hashtag no filter, it means they haven't used any gloss over it. And to me, I think it connotes that you're going to get at the real story without any, you know, big PR releases or spin. It's just a great title. Was that something that people sort of picked up on from the very beginning?

• 6:52Speaker 01

  It was actually hard to convince my publisher to like that title. Eventually, everyone thought it was great. But in the beginning, it was like, should we really? Does everyone know what that means? Is that like a Trumpian thing? They're going to think it's about Trump because he has no filter. I think generationally, if you're an Instagram user, you know what no filter means. But the way I see the title, it's like a double meaning. It's no filter is a nod. The fact that we know that phrase is a nod to the cultural impact of Instagram. No filter also refers to the fact that my reporting is not what you're going to read in a press release or the official story you've heard. Because

• 7:37Speaker 01

  the official story of Instagram, as you know, before my book, was basically that Instagram was a happy company within a company that, you know, had this harmonious post-acquisition relationship with Facebook where they got to be kind of independent. And Facebook was even able to acquire other companies like WhatsApp and Oculus because the Instagram legends, the idea that they were able to buy something and just keep it independent and succeed was so appealing to a lot of founders who thought that if they joined Facebook, they could have none of the risks of running a startup, but all of the rewards

• 8:22Speaker 01

  of still being a founder, still being a CEO and having control.

• 8:27Alex Kantrowitz?

  Right. And today, we're going to actually talk more about the run up to the deal, which I think is important, given the action from the Federal Trade Commission that we might see. But before we do, I just want to say, you and I shared an editor for a bit. Our books, my book Always Day One and your book, No Filter, came out in the same month. We were competitive in a sense and it was a really tough month for the books to come out. But I feel like it was amazing to see how, you know, we were able to talk it through and compare notes. And you were incredibly supportive of my book and I hope that you felt the same way of me with yours. And it was just great to have, you know, someone to go through this with and I just wanted to say thank you.

• 9:11Alex Kantrowitz?

  I feel like, you know, going through that on your own, I mean, obviously we didn't suffer the worst of the pandemic, but releasing in April, you know, at the height of this thing in the beginning was tough. And so just

• 9:21Speaker 01

  And it was hard. It was hard to complain about it because people are literally dying. There are worse problems, right? There are, there are conversations that are more important than the conversation that you and I wanted to have in that moment, after all of this work that we've done. So it was really great to have you because I could just say, okay, are you feeling awkward about this?

• 9:47Alex Kantrowitz?

  Yeah, like on release day, should we tweet that the book is out? Like this was

• 9:50Speaker 01

  Should we talk about it? Should we still have, yeah.

• 9:55Alex Kantrowitz?

  Exactly.

• 9:56Speaker 01

  So, so yeah, for those listening, Alex and I had a Zoom beer session and just kind of talked out strategy.

• 10:06Alex Kantrowitz?

  Yeah. And it was just great to sort of be able to discuss, to see, hey, someone else is going through this as well. You know, we put a couple of years of our lives into writing these books. And then of course, you get all excited about the timing and then the world sort of takes, takes that away from you. And so just being able to speak with you about it was so helpful and I'll forever be grateful. So thank you, Sarah.

• 10:29Speaker 01

  I feel the same. I feel you're, you're the best.

• 10:32Alex Kantrowitz?

  How are you feeling about the way the book is going, by the way?

• 10:36Speaker 01

  Well, you know, there's a difference between the reception for a book and an article. I think, I think one of the hardest things about writing a book is you don't get that constant feedback loop of reporting a scoop, people telling you what you missed, or people telling you what the next step is. And when you tweet something, you get that instant feedback from your audience. And of course, from the company itself, but with a book, and I'm sure you experienced this too. You're kind of just having that conversation in your own mind. You had your post-it, your color-coded post-it notes. I had my note cards. Just trying to figure out how to piece all of this together and make a web of it.

• 11:15Speaker 01

  And so it is really cool to see like when, when a book comes out, the longevity is, is a lot more than an article. An article, people kind of, you know, it becomes part of history, but it has an inevitable fade. And journalism is always about finding out what's next. And books are about finding out why something happens and how it happens and what it means. And, and those questions are, are not ephemeral. They are, they're lessons that we can learn from and things that can shape our thinking about the future.

• 11:59Speaker 01

  And so it, I, I'm sure you've seen this too. It's just been, it's been cool to see like the kind of steady word of mouth and appreciation for understanding what's behind these companies that are getting ever more powerful.

• 12:16Alex Kantrowitz?

  Yeah. And I think that in terms of longevity, I mean, your book is going to be something that people are going to be talking about for a long time. And it's sort of the reason why I thought this would be a good week for us to talk, because it does seem to be that we're nearing a moment where the FTC is going to bring a lawsuit against Facebook and all signs point to that lawsuit. Looking back at the Instagram acquisition and trying to see whether or not Facebook illegally maintained its monopoly. And I feel like maybe this conversation that we're going to have today is going to be a preview of one that you're going to have over the next two or three years as this action gets going. Now, I mean, I'll say this with the caveat that, you know, I'm not a hundred percent

• 13:01Alex Kantrowitz?

  certain that this is where it's going, but I feel pretty good about the direction. And I'm just going to set the stage quickly. So there's a reason why Facebook is going to show up in front of the FTC in a lawsuit and Instagram seems to be the likely case. And the reason is just because of the laws that we have today that govern. Monopolies. We're looking at a law back from the 1890s called the Sherman Antitrust Act that was signed by Benjamin Harrison. It's an old, clunky law. It's not very good for the use of, for looking into tech monopolies, which you point out in your book, Sarah.

• 13:41Alex Kantrowitz?

  But there is this section two in the Act, which looks at whether a company illegally maintained or sustained their monopoly. And in the section, in the second section, there's basically three things that the FTC needs to prove to show that there was a legally maintained monopoly. The first is that there's a monopoly, the company has a monopoly in some market, and for Facebook, you would probably say, social networking is the monopoly. Now, the next two are where it gets interesting. The second one is that it's done something exclusionary, which means it's used its heft to prevent competition in the market. And that might be where you get to the Instagram acquisition. And then the third part is that

• 14:21Alex Kantrowitz?

  the anti-competitive behavior preserved the monopoly. So, did Facebook acquiring Instagram help it preserve its monopoly in social networking? And I feel like that's the next, that's the thing that I'd like to get into with you, Sarah, as we, you know, spend the next few minutes with each other, or the next half hour, really. So, I'd love if you could bring it, you detail this great, in no filter, in real depth. But can you bring us back to Facebook at the time of the acquisition of Instagram? Where was Facebook at the time of that, of that acquisition? And, and how did the Instagram threat merge to Facebook?

• 14:59Speaker 01

  Facebook was really struggling to understand how to build its product for mobile phones. Because essentially, they started with a desktop app, and then they were trying to cram all of those features from their desktop app into a mobile app, and it was And it was not that, not very functional and they didn't know how to make money off of it. And that was like a, a very existential crisis internally at Facebook. Uh, can we figure out mobile, how to develop there, what works there? And Instagram was like the key app on the iPhone.

• 15:40Speaker 01

  Like it was something that was so naturally intertwined with how people would use their phones. Instagram didn't even have a web app for a long time because the point of it was that you were out in the world. You had this camera in your pocket all of a sudden and you wanted to, to use it and use it in a way that, that was fun. Um, and Facebook at the time could see the popularity of Instagram really easily because Instagram had the ability to crosspost to Facebook and to Twitter and to Tumblr and foursquare and all these places. So Instagram filtered photos were like everywhere on the internet. And, um, Facebook could see that activity really start to, um, to be popular.

• 16:25Speaker 01

  And, and they wondered like, is there a way we can, can capture this? And then they also, they also were concerned that, that Twitter was interested in acquiring Instagram. And Mark Zuckerberg knew that Kevin Systrom had a close relationship with Jack Dorsey, the CEO of Twitter. Um, Kevin Systrom's the CEO of Instagram. Um, Jack Dorsey was actually an angel investor in Instagram and his

• 16:54Alex Kantrowitz?

  He helped build the thing.

• 16:55Speaker 01

  About, well, he, he helped build it, not, not engineering.

• 16:59Alex Kantrowitz?

  As a user.

• 17:00Speaker 01

  He helped build it by, by essentially being the first Instagram influencer. He was, he was posting about Instagram on Twitter and he was one of the highest followed people on Twitter being, being the co-founder. And his endorsement for Instagram led a lot of cool people to go start using it. And that made the content on Instagram really good and it it made it it had this sort of cultural cachet to it. Because Instagram was really all about like the creative community, finding the right people, the right kind of content on the app. Unlike unlike Facebook where like more is more, growth is good, like bigger is better. Instagram was really about like the tone of the content, the the feeling that you get when you're there.

• 17:45Speaker 01

  It had to feel curated, it had to feel almost magazine-y to be on Instagram.

• 17:50Alex Kantrowitz?

  Yeah, you have this line in your book, I think it's Facebook was a constant class reunion and and Instagram was like a constant first date. Is that that's from No Filter, right?

• 17:59Speaker 01

  Yes, that's yeah.

• 18:01Alex Kantrowitz?

  That's a great line. That's a great line. Yeah.

• 18:04Speaker 01

  It it's really just because if you think about how Instagram works, it is a place with no resharing and it's image based. So everything that is on your profile is something you have created. Unlike Facebook where, you know, something you post could be a link to somewhere else or it could be a comment on someone. Instagram was just pure personal brand. And and the idea of a personal brand was not, it was more just like, here's my my visual scrapbook. And a lot of people thought like, why would you need this? We have Flickr, we have Photobucket, we have all these things. Why would you need this on mobile cameras and even mobile phone cameras and even take good pictures?

• 18:46Speaker 01

  But the Instagram, the Instagram service was was gaining traction, gaining a network. Unlike any of its competitors, PickPleas, HipSomatic.

• 18:58Alex Kantrowitz?

  This is a point. Yeah, I want to I want to key in on this. Sorry to to jump in here, but I do want to key in on this because Facebook, as you mentioned, had built this, what what looks like you could call it a dominance, maybe a monopoly. That's going to be something we're going to debate for a while on desktop after it crushed all the competitors such as Myspace. But then mobile comes and you see this emergence of all these different camera platforms, like you're talking about Camera Awesome, HipSomatic, Instagram. But didn't I feel like something made Instagram different and you might have just touched on it, which is that. For the other camera apps, people would basically filter photos and still post them on Facebook, but Instagram had a feed. So how did that make Instagram a unique threat to Facebook?

• 19:42Speaker 01

  Well, it was a destination and every Instagram-created post was essentially an advertisement to go download Instagram, right? If you saw something cross-posted to Twitter or something cross-posted to Facebook where there was sharing and virality and it said this image, the way this person got this cool nostalgic filter on their images through Instagram, it grew off the network that Facebook and Twitter and Tumblr, et cetera, had. And that was something that Facebook thought was, we just can't have, you see this over and over in Facebook's antitrust history,

• 20:24Speaker 01

  we just can't have someone using our network to become a competitor. Like, that's something that, you know, we want. We want dating apps. We want Tinder and Bumble to connect with Facebook until we don't. Until we feel like we want people to use Facebook for dating, you know? So I think that that was one of the early senses of that. The other thing that is worth noting, Mark Zuckerberg really understood how to talk to founders. And I think that he pitched this idea of independence for Instagram

• 21:09Speaker 01

  and a way to be a founder and have an exit and have all that security while maintaining the control. And so he sort of said, like, let's...

• 21:25Speaker 01

  Join forces so we don't compete. And I think that Instagram was thinking about it the same way. If we get acquired by Facebook, we essentially eliminate one of our top future competitors.

• 21:37Alex Kantrowitz?

  Some of the stuff that came out in the House Judiciary Antitrust Committee was that like, Systrom is like, well, we either get acquired or Facebook goes into destroy mode and crushes us.

• 21:48Speaker 01

  Right. It was like a non-option. They were growing off of Facebook's network. So if Facebook just cut them off, like, who's to say Twitter wouldn't cut them off after declining Twitter's acquisition offer? And then it would just be so hard. I think that that was, that was the, the big stick that Facebook had to wield. The other thing was, uh, the network effect that Facebook was concerned about. When you look at the landscape of the photo products, some of them did have feeds. But, but Instagram was the one that had the network effect. And that's like the exponential growth of people joining. You had, you had celebrities on Instagram.

• 22:32Speaker 01

  You had, before the Facebook acquisition, you had Justin Bieber on Instagram. You had Barack Obama on Instagram. You had Kim Kardashian, Taylor Swift, all these people who would go on to use Instagram to become even more famous. I guess maybe with the exception of Obama, he had other, other means. But, but it certainly gave this, it, it gave this cachet of like, being a part of our culture that Facebook didn't really have. Facebook never attempted to, to call favor with the top users of its platform in those early days. They were more focused on the size and the numbers and not the, the top.

• 23:16Speaker 01

  Influencers, I guess I should say. So they saw something unique in Instagram and that's why Mark was able to tell Kevin, you know, we'll let you be, we'll let you grow on your own.

• 23:29Alex Kantrowitz?

  Yeah, and this is an important point because Instagram was building itself off of the networks of Facebook and Twitter, but also it became this destination into itself. So if Facebook couldn't get its act together with its mobile app, which it did eventually, but not after some fits and starts, it risked losing its basically hold on the world of social networking to this app that people not only went to to filter photos, but they went to to see what people were posting. And that was a real threat to Facebook, wouldn't you think?

• 24:01Speaker 01

  The most telling sign that, of course, you know, we've seen the emails, we know that Facebook has now said publicly, of course, of course, we acquired Instagram because it was competitive, but that's not the only reason.

• 24:16Speaker 01

  They, they joined Facebook, so it took a few months of deal approval, we can go into that later, but they joined Facebook. And before Facebook lent them any resources, this was like, just imagine the Instagram team, tiny, tiny team, just 13 to 15 people, hard to hire over the summer because people didn't know necessarily what they would have at Facebook, what they wouldn't have, they weren't allowed to coordinate about what their team would get in terms of resources, and just exponential growth, and it was crushing them. And, and they joined Facebook a few months, like six months after the deal was negotiated.

• 24:58Speaker 01

  And the very first week, Facebook's growth team takes the one Instagram growth guy out to lunch and says, says, hey, so we have to, we have to do a study, we want, we'll help you grow, but we have to do a study first to make sure that you aren't the reason that photo posting is going to decline on Facebook. So as long as you're not a threat to Facebook, we'll give you resources. Which is just kind of crazy because then that goes to show, they bought Instagram. With the intention of helping it if they thought that it wouldn't crush Facebook and killing it if it if they thought it would.

• 25:40Alex Kantrowitz?

  Right, so it was evident right from the beginning.

• 25:43Speaker 01

  Yeah, this is a competitor. We can't have that.

• 25:45Alex Kantrowitz?

  Do you know?

• 25:46Speaker 01

  We have to either own it or not.

• 25:49Alex Kantrowitz?

  Yeah. Do you know when Facebook decided it was going to buy Instagram? I mean, it looks, you know, from the text, it looks pretty abrupt, like one day Zuckerberg's like, yep, I think we should buy them. And then Zuckerberg goes to Kevin Systrom and he's like, I've decided to buy you. But was there like a compelling event or a moment in Facebook history that made them decide? We need to make this move?

• 26:10Speaker 01

  Well, yeah, I mean, I think that there was, there was big concern that Twitter was going to buy them. And Instagram had just raised a ton of money in a funding round, and they were going to have a ton more resources to grow. And so before anyone, before they were able to turn up, dial it up to 11, they had to figure out how, how Instagram was going to fit with future. They could see that it was about to have this like, this exponential moment, and they had to put it in, in some strategic position for them.

• 26:47Alex Kantrowitz?

  Right. They had raised like, I think I'm quoting from the book here, but correct me if I'm wrong, like $50 million at a $500 million valuation, and then Zuckerberg goes.

• 26:56Speaker 01

  Which was huge at that time. Like, that was, that was crazy. Facebook had 100 million, 100 million valuation if I buy, 100 billion.

• 27:06Alex Kantrowitz?

  100 billion. Yeah, but even for, for a camera app, quote unquote, camera app, it was a lot of money. And Zuckerberg immediately goes to Systrom, I'm going to give you double.

• 27:15Speaker 01

  Yeah, he said, I'm going to give you 1% of Facebook for this. Kevin Systrom, by the way, at first asked for 2 billion, because. He didn't want to sell.

• 27:25Alex Kantrowitz?

  Might as well. Right. Yeah, he didn't want to sell and he had discussions with Twitter. And he'd even in private messages that are now public talked about how Twitter was a better fit and how uh, Jack Dorsey, you know, had been this, we talked about had been this influential user. And I think there was like this dispute also where it's disputed now, but I mean, it seems like it happened that Twitter actually drew up an offer sheet for Systrom, for Instagram, somewhere in the five to $700 million range and Systrom turned them down. So, I mean, the thing that I wonder as I read through this whole saga is why the hell didn't they just sell to Twitter? It seems like they knew it was a, they thought it was a better fit.

• 28:07Alex Kantrowitz?

  They seemed afraid of Zuckerberg in some ways. So how did, how did Facebook pull this off?

• 28:13Speaker 01

  The thing that Instagram really needed was not what Twitter had. Um, Twitter was, at the time, people thought Twitter might end up being as big as Facebook. It really wasn't as obvious that they would remain so small. That's one of the reasons why people were um disappointed in the couple of years post-IPO with Twitter. But at the time, they were pretty equivalent in people's minds as powerful platforms that were growing really fast. And the, the thing that was happening on Twitter all the time was it was just going down and it had a lot of internal drama at the top and, and they, they didn't have a really strong engineering core.

• 28:55Speaker 01

  Um, Instagram was also going down all the time. If they had joined Twitter, or at least they were having to fix the app all the time. If they had joined Twitter, that wouldn't have helped them in their biggest problems. Whereas at Facebook, Facebook was known for having really good infrastructure. And uh, Mike Krieger, this, the co-founder and chief technology officer of Instagram really respected their engineering chops and, and he was like waking up at, at 4:00 AM all nights of the week to deal with, you know. The network alarms.

• 29:30Alex Kantrowitz?

  Right. Canceling dates.

• 29:31Speaker 01

  He was like, okay, this, it was exhausting. They were exhausted. And it was not clear that if they joined Twitter, they would fix those problems. And Twitter also, um, they had a vision for Instagram that, that was more like, well, we just wanna, we just wanna bring you in. We'll figure it out later. Like, maybe Kevin, you could even be head of product at Twitter. You know, we'll see. We'll see what happens. There was not, it was like, take, you want this money? Cause we'll just get the money to you and then we'll figure it out. And, and it just wasn't a compelling emotional offer, the way, the way Facebook made it, or even threatening the way Facebook made it. Like, you're with us or against us?

• 30:12Alex Kantrowitz?

  Yeah, right. Which is basically what Zuckerberg, uh, did when he went to Systrom, at least the way that it reads. Um, so how did Zuckerberg close the deal on Instagram?

• 30:22Speaker 01

  Well, he appealed directly to Kevin and then he wrapped it all up in a bow over Easter weekend, uh, without any external bankers. And it was, it took about three days, all told. Uh, they had a really quick review of Instagram's code, which just involved calling Mike Krieger and asking him a few questions. He never even looked at the code.

• 30:41Alex Kantrowitz?

  Right. Krieger, I'll just keep going back to your book, but Krieger said, we could have built this thing on Lego and they wouldn't know. God, that was one of my favorite lines. Yeah.

• 30:50Speaker 01

  Yeah, it was just like, it was just like, we know what we want. We're gonna get it. And there were a few scuffles about, you know, what percentage would be in stock versus cash and, um, again, these guys were exhausted. Like, a little cash goes a long way when you're that exhausted. And, and then done. And Facebook's board, like, was barely addressed before the, the ink was dry on the paper.

• 31:24Speaker 01

  It was, it was a fast process. And that's partly because Zuckerberg didn't want.

• 31:31Speaker 01

  Any any time for Kevin to just ponder it and get cold feet. He just wanted to make it happen.

• 31:38Alex Kantrowitz?

  Yeah. Okay. And now we're going to get to the key question here, which is we talked a little bit about how, or I talked a little bit about how the second important thing that the FTC would look at with Facebook is whether it's done something exclusionary to prevent competition in the market. How did the acquisition of Instagram by Facebook change the nature of competition in social media?

• 32:01Speaker 01

  It it meant that one company would end up owning the first and second most popular social networks in the world.

• 32:14Speaker 01

  It's it's just astounding. Like if Instagram remained separate, maybe they would have a trajectory like Snapchat, maybe they would have fizzled, maybe Facebook would have killed them.

• 32:28Speaker 01

  Maybe they would have joined Twitter or Google or Apple, any number of companies. And the the way that we are living today would be different.

• 32:39Alex Kantrowitz?

  Yeah. Would you say that the acquisition sort of helped Facebook like put a stranglehold on the social media world from then on?

• 32:47Speaker 01

  Yeah, I think that that Facebook didn't even realize it in the beginning. I think initially they thought of Instagram as like it's hey, it's really great that we were able to get this competitor to be part of our company and part of our corporate situation. But they didn't really think of it much strategically beyond that. And then then Zuckerberg did did see that they were able to use that whole independence of Instagram to appeal to other founders like Yan Koo of WhatsApp saying, oh, yeah, you know, let's try it out. Kevin Systrom to have dinner with Yan and tell Yan that everything will be fine, which they did.

• 33:32Speaker 01

  And Yan was deciding between selling WhatsApp to Google or Facebook and pick Facebook. So that's huge. The fact that Facebook also owns WhatsApp, that was a that was a $22 billion acquisition. So in the beginning, it was it was strategic in that way. And then once Instagram

• 33:54Speaker 01

  Launch stories. It became a lot more frequently used. Its growth actually accelerated, which is rare for a social network for growth to accelerate. And, and then Facebook started to feel actually threatened by the company that they owned. Like they, they had brought them into the fold, but still they could see that question that they asked at the very beginning with Instagram, like, are they cutting into the potential that Facebook has for photo sharing? They were, they were highly concerned about it. And so Zuckerberg made Facebook do stories and WhatsApp do status and Messenger try the same, like, they wanted it to go everywhere, just so like Zuckerberg thought that Instagram

• 34:39Speaker 01

  was only successful with stories because they, they did it first and, you know, that was eating into Facebook's opportunity. It was, it got really tense. And this was right after the 2016 presidential election, when, when a lot of, of scrutiny of Facebook was cropping up and, and Zuckerberg was thinking like, I don't actually believe that, that people are, are hating Facebook because they don't like it. We see the user numbers are good, but maybe it's, they have this like alternative option with a much happier brand that they're going to. And we are sending them there. We are literally advertising Instagram all over Facebook. Every time someone posts an Instagram on Facebook, we say, check it out on Instagram. We should kill that. We should stop it.

• 35:24Speaker 01

  We should instead make it so that people on Instagram get redirected to Facebook.

• 35:29Alex Kantrowitz?

  Right. It must've been this weird emotion where it's like, uh, we've, we've created something that people like more than, uh, my baby, you know, from Mark Zuckerberg's standpoint, but also, man, thank God we bought this company. Cause if this was happening with somebody else, uh, owning it, maybe Twitter or maybe Instagram doing it standalone, then it would be some, some deep trouble for Facebook. So, uh, when we come back, we're going to take a quick break. When we come back after the break, I want to talk a little bit about, um, where we stand from regulatory standpoint, now that Facebook does own Instagram, how the FTC let the deal go through and what it might do, uh, you know, to potentially unwind it. So stay tuned. We'll be back here with Sarah Fryer from Bloomberg and the author of No Filter, The

• 36:14Alex Kantrowitz?

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• 38:20Alex Kantrowitz?

  And we are back here on the second segment of the Big Technology Podcast with Sarah Fryer, Bloomberg reporter and author of No Filter. We've talked a little bit about how Facebook, or I guess a lot about how Facebook has built such dominance through its acquisition of Instagram. And now the FTC might examine it and think about potentially even unwinding it, or finding a way to create room for some other competitors. One of the big questions I think we're going to be asking is, how did the FTC let this deal go through? And it seems like they let it through pretty breezily. So can you take us back to that moment, Sarah?

• 38:57Speaker 01

  Well, Facebook was making these arguments. This is 2012. Facebook has just gone public, and its stock is cratering because investors think it's never going to make any money on mobile phones. And they want to spend $1 billion on this tiny company that has no revenue. And they failed to see, the key thing that we talked about at the beginning of this episode, the network effect. The fact that Instagram was already winning that market. And of course, Facebook didn't take any pains to really dwell on that fact that that was part of their rationale for buying Instagram. Instead, they said, well, you know,

• 39:39Speaker 01

  I don't think we even know if this app is very dominant. You know, we don't really, it's just one of many camera apps. We don't have a camera, we are building our own camera app, and this is another one. And you could also do Hismatic, or Camera Plus, or Path, or Camera Awesome, or PicPlease. There were all these other apps that they listed and talked about, and said, well, you know, we're just, we just have no idea if this is going to work out. There's no revenue here. So the FTC was kind of just like... Okay, that sounds, that sounds unthreatened. Like, we have, we have no reason to stop this.

• 40:22Speaker 01

  You guys are, we don't even know if you guys are gonna survive the next few months. And, and that was, that was great for Instagram. Zuckerberg didn't even go to DC to be interviewed by the FTC. He did it via video call, which, video calls are very common today, but-

• 40:40Alex Kantrowitz?

  Before the coronavirus.

• 40:41Speaker 01

  Pre-coronavirus. And Kevin Sisram, when he went to, to, um, to be interviewed about the app at FTC, they had like really junior people talking to him, and they were like fanboys of the app. This is so interesting. Tell us more about how it works. And, and also, and this is common in technology deals, but I was really shocked by this. The, the people doing the discovery on the, uh, sort of for the, for the FTC report, so they could see what, uh, what was potentially concerning within the text messages and emails, et cetera, the documents that they gathered from Facebook and Instagram.

• 41:26Speaker 01

  It was Facebook and Instagram lawyers were doing that discovery.

• 41:30Alex Kantrowitz?

  Right. Yeah, go ahead.

• 41:32Speaker 01

  And they were asking, they were asking questions like, you know,

• 41:37Speaker 01

  Kevin bought one of his employees a nice bottle of bourbon to celebrate the fact that Instagram had passed Facebook and App Store popularity. Does that mean that Instagram is a competitor with Facebook? And the employee answered, "Well, I think any app would be happy to pass Facebook in popularity." And that was that. Um, and that interview was done by Instagram's lawyers. So, so I think that it was just kinda small potatoes.

• 42:08Alex Kantrowitz?

  Right, and they let it go through. And so here's a question for you now, given the state that we're in. So if the FTC can show that Facebook had a monopoly in social networking, that it did make this acquisition in order to prevent competition in the market, which seems like it might be able to do, and that it preserved its monopoly in social networking, that also seems feasible. Does the FTC have the capability to unwind a deal that it approved?

• 42:36Speaker 01

  Well, if you look at the approval letter, they gave themselves an opening to come back to it. They didn't say like, "This deal's approved forever and ever." I forget the exact wording, but it was something like, "We have no reason to block this at this time." And so I think that, sure, they can do whatever they want. I think that when we get to talking about something like a breakup, which is what is always top of mind in these discussions, like, "What if you just separate it out into its own company and everything would work out from there?" As you and I have seen, Facebook has really quickly, over the past few years, especially since the Instagram founders left in 2018

• 43:20Speaker 01

  out of frustration with Zuckerberg's restriction of resources. We've seen Facebook decide to intermingle their apps, maybe in a way that makes it easier for Facebook to operate them, but is maybe not in the best interest of Facebook's users. And we're seeing it happen right now with messaging, where you have Instagram Direct combined with Facebook Messenger. They're eventually going to add WhatsApp to that. Zuckerberg is trying to create a mega-network out of all of his different networks. So you can decide, like, maybe Instagram's your favorite platform, but you can still interact on Instagram with everyone who's on Facebook,

• 44:05Speaker 01

  and you can interact with merchants who use WhatsApp, and that would give them more power. Because what Zuckerberg thinks, which I'm not actually sure that I think this is the most important thing, but Zuckerberg thinks the bigger the network, the more valuable the network is to people.

• 44:22Alex Kantrowitz?

  Yeah, it depends how you structure it. Sarah, do you think that this integration that we've seen, bringing the apps together, do you think that's explicitly meant to fend off a breakup from the FTC, which has the power to do it?

• 44:36Speaker 01

  I don't think it's specifically meant to fend off a breakup. I think it's also because because Facebook wants to have product control over these, I guess I should say, operational control. Like, it just makes sense at scale if you are dealing with something like election integrity, or if you are dealing with something like, you know, legal, or HR, or something. You want those things to be centralized and help all the apps, because then you have just one team that deals with everything.

• 45:19Speaker 01

  And previously, you had like a head of growth at Instagram and a head of growth at Facebook, and you know, there were some, there were some kind of messy reporting structures where people would report to a boss at Instagram, but also report to the Facebook team that was somewhat, like, the ads team on Instagram also worked closely with the Facebook ad team, but maybe reported to the Facebook ad team, because Facebook didn't want Instagram to just build its own ad system, because that just wouldn't, that would make it harder for advertisers to buy. So, so I think that this is just all in the name of, of moving faster to build stuff. The problem that you get, at least the problem I see from an antitrust perspective,

• 46:03Speaker 01

  or the problem from a consumer good standpoint, is that when you have Facebook in charge of all of these networks that Facebook considers to be smaller and less important than Facebook, imagine where the resources are going. They're restricting resources for Instagram. They're not letting them hire all the people that they wish they could to solve their problems. And in fact, Instagram's problems become secondary to whatever is getting attention in the news for Facebook. And Instagram is an intensely influential network, shaping our society just as much, if not more. And, and the AI systems that are rooting out problems on Facebook,

• 46:48Speaker 01

  they don't all transfer over. The argument that Facebook is making, and a lot of its arguments against a breakup, is that it's safer for them to have all these products together, because they can find like fraudsters and...

• 47:04Speaker 01

  You know terrorists and child pornographers across all the networks and if you combine their identities, then you know what's out there and can solve it. But in reality, Facebook gets the priority, that network gets the priority and everything else gets too big for help.

• 47:26Alex Kantrowitz?

  Yeah, if Facebook were to make this argument that, hey, we can't unwind this, it's already too integrated. Do you think that that, do you think that's true? Or do you think they could actually unwind it if they were forced to?

• 47:37Speaker 01

  It would take years. I mean, they wound it so they can unwind it.

• 47:40Alex Kantrowitz?

  Yeah, right? So it's sort of gonna be like, I don't know, do you, can you see a situation where the FTC does unwind the two companies?

• 47:51Speaker 01

  I, sure, I mean, I, but I think that we, okay, the antitrust side of the FTC is different than the side that worked on the privacy issues. But look at what hap, like the FTC doesn't have a lot of things right now. If you look at what happened in the privacy case that they brought against Facebook after Cambridge Analytica, the penalties were

• 48:18Speaker 01

  five, five billion dollars, which for Facebook, which has more than 70 million in annual revenue is like, sorry, 70 billion in annual profit.

• 48:27Alex Kantrowitz?

  Not very harmful.

• 48:29Speaker 01

  It is just not, not much. And, and then you have uh, all of these measures of things, like all these issues that Facebook needed to resolve. And every single one of them was something that had previously appeared in a Facebook press release as something they were already doing.

• 48:52Alex Kantrowitz?

  Yeah. So you don't really see a lot of hope for the FTC making a real dent here?

• 48:58Speaker 01

  Well, it seems pretty clear to me that that case operated with a lot of backroom discussions. I, I don't know if you saw the, the documents that came out about it, but it was like, it was like, hey, when should we schedule a time to talk on the phone? Like, most of the documents were like, not actual negotiation happening in writing.

• 49:19Alex Kantrowitz?

  So they, they, Facebook learned their lesson a little bit on that front.

• 49:22Speaker 01

  They did, they did, slowly but surely.

• 49:25Alex Kantrowitz?

  Yeah.

• 49:26Speaker 01

  Um. And and there was a lot of a lot of negotiation to do something that would make the FTC look good, but not be too harsh on Facebook.

• 49:37Alex Kantrowitz?

  Yeah.

• 49:37Speaker 01

  Because, you know, as long as they can say they they gave them the biggest fine ever in the history of of FTC, they can say they

• 49:47Alex Kantrowitz?

  That was good.

• 49:48Speaker 01

  laid the smackdown.

• 49:50Alex Kantrowitz?

  Yeah, so I I want to ask, I want to conclude with a couple of forward looking questions. Um, first thing first, uh, given the discussion we've had about the acquisition, Instagram acquisition and the impact on competition, and we know the FTC is looking into Facebook in a big way, okay, maybe there's not a breakup. Where do you see this uh, this concluding? Where do you see it going?

• 50:13Speaker 01

  Well, I think we need to not just think about the FTC. There's also Congress, which put out a almost 500 page report on the tech companies and their anti-competitive practices and trying to come up with with legislation to limit them. You have the DOJ, which is also working on a Facebook case. You have uh, state attorneys general who are likely going to join the FTC case, which could make it more powerful. And and so I think that that this is not going away. If Facebook is going to try to lobby one group or the other, um, I I'm very curious what will happen in a Biden administration because uh, already

• 50:57Speaker 01

  you've seen a lot of folks who were previously in the tech industry, tried to enter positions to to regulate, or at least think about regulating the tech industry. Biden, uh, Biden spokesperson this week said that Facebook is shredding the fabric of our democracy. However, like

• 51:18Alex Kantrowitz?

  Yeah, they're just mad about ad policies, though.

• 51:20Speaker 01

  They know these people. They're uh, in many cases are um, working with people who had worked at these companies, or Facebook has hired folks who used to work with them. It it's the same thing that happened with uh, Facebook and the Trump administration. They hired a lot of heavy hitter Republicans, and they were able to make Facebook seem very friendly to power and uh, just

• 51:50Speaker 01

  A little, a little sleazy goes a long way.

• 51:54Alex Kantrowitz?

  Yeah. Okay. And then let's just talk about, so, so that will definitely be ongoing and, and personally, you know, just to the listeners out there, I would say, keep your antennas up because a lot of the stuff we talked about today is probably going to come out. And this, hopefully, this discussion hopefully provides some context on that. And now, Sarah, just from a product standpoint, you mentioned Instagram taking a lot of the momentum away from Facebook. It seems like it's everyone's favorite app compared to Facebook. So from a product standpoint, do you think Instagram supersedes Facebook and makes it irrelevant? Do you see another company coming out of nowhere and starting to challenge this lead? Where do you see sort of this, the product game going in the social media world?

• 52:35Speaker 01

  Well, here's a clue. Facebook hasn't given us a user metric for Instagram since 2018. They didn't even want to say it in 2018 that Instagram had a billion users. We have no idea how many users they have right now. That's something you should get a scoop on for big technology, or I should try as well.

• 52:54Alex Kantrowitz?

  That's right. I'm pretty sure you'd beat me to the punch on that. But all right, I'm happy to, to put a wager on it.

• 52:59Speaker 01

  But they've never, they've never said Instagram's revenue. They've never broken it out. I, I had to find out through sources that it was more than 20 billion in 2019. So that's a quarter of, of Facebook's revenue. So actually, earlier I said profit, I meant revenue. The signs are there that Facebook is, is threatened by Instagram's size and influence. And we might, we may not know through Facebook unless, I, I hope Congress asks or the FTC asks, you, how big are the, how big is Instagram? How big is WhatsApp?

• 53:39Speaker 01

  Like, why is it okay for Facebook to only produce a, a single family of apps number and then a Facebook number?

• 53:50Speaker 01

  It just doesn't, doesn't make sense for understanding their power and their influence. And, and I think that the, the other thing is you have seen Instagram become, from a product standpoint, a lot more like Facebook. They are adding notifications more often for people, they're adding recommendations.

• 54:16Alex Kantrowitz?

  Just did a new product change today, which is gonna be a couple of days afterwards, but we're, we're in a new product, product era for Instagram already. But sorry, keep going.

• 54:25Speaker 01

  Yes, more focused on shopping.

• 54:27Alex Kantrowitz?

  Yeah, which is bizarre.

• 54:28Speaker 01

  One of the things that I think has happened to Instagram is it has become more like Facebook in the absence of the founders who really cared about simplicity. We have, if you use Instagram today, you have Instagram's main feed, but then you also have Instagram Stories, IGTV, highlights, you have shopping, you have reels, you have direct. You have all of these, and checkout is kind of like shopping, but not like, it's, it's so confusing if you're a new user of this platform to get into it and, and understand it. So I think that actually could be a threat.

• 55:09Speaker 01

  And there was an interesting line in, in the congressional report for evaluating the impact of, of Facebook's ownership of Instagram on, on the, the cost to users. And one of the costs is, is not developing products in the interest of the user.

• 55:31Alex Kantrowitz?

  Yeah, yeah, that's definitely, you look at where the harm is done, that could be it. So, but we'll see, it's kind of where both of our books collide, right? Like. Yours is, you know, you talk at the end about Facebook's Chelsea. Instagram for me, always day one, like it's, you gotta look at things like it's your first day and let go of a legacy. And the message to Facebook on that front is like, we understand that there's some sentimental attachment to the blue app, but look at what you have in front of you. You know, you did buy this thing, might as well write it. So, but we'll see.

• 56:03Speaker 01

  Exactly.

• 56:03Alex Kantrowitz?

  Yeah, maybe, who knows? Mark Zuckerberg might have his own opinion on that. The FTC might have its own thoughts and state AGs might have their, have other thoughts. So there's one thing that's certain, I believe, is that this isn't going to be a static area. I feel like there's going to be a lot of action on this front. And hopefully this conversation.

• 56:22Speaker 01

  We've been talking about the election for four years. I feel like this is going to be the next big thing we talk about in tech.

• 56:27Alex Kantrowitz?

  Totally. Yeah, I agree a hundred percent. And Sarah, I hope you're prepared to do a lot of these type of conversations because you're going to be in demand.

• 56:35Speaker 01

  Thank you so much, Alex. It's been a pleasure.

• 56:38Alex Kantrowitz?

  Well, great having you on, Sarah Frier. Everybody should go out and pick up the book, No Filter, The Inside Story of Instagram. You're going to want to read it before the fun begins in Washington DC. Sarah, where can people get the book?

• 56:52Speaker 01

  Anywhere that you buy books, you can buy No Filter in many languages as well. I would just make a special shout out to independent bookstores. It's been a tough time for them with COVID. So if you do have a favorite or a way to purchase, a lot of them are doing online shipping.

• 57:09Alex Kantrowitz?

  Great. And then elsewhere online, people can get in touch with you on Twitter. Is that, where else do you want people to find you?

• 57:16Speaker 01

  On Twitter, on Instagram, of course. The book is also available as an audiobook, ebook. So, so many different ways to interact with it and with me.

• 57:27Alex Kantrowitz?

  Amazing. Well, Sarah, I'll be looking forward to reading your reporting. And again, I can vouch for the book. It's a good one. Thank you, everyone, for listening. It's your first, if it's your first time listening, feel free to subscribe. Actually, we invite you to subscribe. There's a new episode here on the Big Technology Podcast every Wednesday. So if you like this one, we'll have another one coming up next week. And if you're a longtime listener and you're. You're on, you know, one of the apps that allows ratings. For instance, Apple Podcasts, a rating would go a long way. So if you could rate us, it doesn't have to be five stars, but a rating would be, would help. We'll take it and we'd be extremely grateful for it. I want to thank the people at Red Circle who do the hosting and sell the ads for the

• 58:07Alex Kantrowitz?

  podcast and Nick Guatney, who's the terrific and talented editor who puts it together every week. We will see you back here next Wednesday for a new episode of the Big Technology Podcast. It's going to be a fun one. We're going to talk a little bit about the way technology and the way Silicon Valley has had an impact, maybe a harmful impact, but certainly an impact on the rest of the economy. So until next week, this is Alex Cantrell and I wish you well. We will see you then.

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