‘Instagram can harm us’: Mark Zuckerberg outlines emails to neutralize contestants

In late February 2012, Facebook CEO Mark Zuckerberg emailed his chief financial officer, David Ibersman, to the idea of ​​buying smaller competitors, including Instagram and Path. “These businesses are nascent, but established networks, brands are already meaningful, and if they develop on a large scale, it can be very damaging to us,” he wrote. “Given that we think our own assessment is quite aggressive and we are weak in mobile, I’m curious if we should consider going after one or two of them. What do you think?”

The ibbersman became suspicious. “All the research I’ve seen is that most deals fail to create the value expected by an acquaintance,” he said. “I will force you to tell me what you are trying to achieve.” Ebersman lists four possible reasons for companies to buy and puts their views on each: neutralizing a competitor, acquiring talent, integrating products to improve the Facebook service, and “others”.

It’s a combination of neutralizing a competitor and improving Facebook, Zuckerberg said in a reply. “There are a limited number of different social mechanics to network effects and inventions around social products. Once someone wins over a specific mechanic, it is difficult to suppress them without doing anything different to the others. “

Zuckerberg continued: “One way to see this is that what we are actually buying is time. Even if some new contestants buy Instagram, PATH, Foursquare, etc., we will now have a chance to get closer to their scale once again before integrating their mobility for a year or more. During that time, if we incorporate the social mechanics they were using, those new products will not gain much traction because we will already deploy our mechanics extensively. “

Twenty-five minutes later, Zuckerberg sent a carefully worded explanation for his first, lax comments.

“I didn’t mean that we would buy them in any way to prevent them from competing with us,” he wrote.

The email between Zuckerberg and Ebersman was revealed during a hearing on antitrust issues at the Tech of the House Antitrust Subcommittee today, as Rep. Jerry Nadler (D-NY) questioned Zuckerberg about the Instagram takeover. Emails, along with many other 2012 messages and documents, suggest that Facebook – and Zuckerberg, in particular – wanted to buy Instagram to avoid competition, the committee argued.

“Facebook, by its own admission … saw Instagram as a threat that could potentially siphon business away from Facebook,” Nadler said during a hearing on Wednesday. “So instead of competing with it, Facebook bought it. This is exactly the type of anti-takeover that antitrust laws were enacted to prevent. ”

According to the committee, sending an explanation about not stopping companies from competing with Facebook is itself evidence that Zuckerberg knew he would reveal too much. (In a presentation of emails to members of Congress, lawyers for the opposing committee called the slide “What’s!”).

By early April 2012, Zuckerberg was moving toward a deal. “I just need to decide that we are buying Instagram,” he wrote in a series of emails sent before the company made an offer to buy. He wrote, “Instagram can be a huge business without harming us.” Conversely, if Facebook didn’t buy Pinterest or Foursquare and they were successful, “we’ll just regret not doing them” internally, he said. “We are already working on building some version of Foursquare.”

The emails are evidence that Zuckerberg saw Instagram as a potential existential threat to the company, according to the committee – a clear statement that CEOs moved to buy upstart apps to protect Facebook from current and future competition. For its part, Facebook has stated that Instagram competed with some aspects of Facebook, but also complemented its core features.

“I made it clear that Instagram was a competitor rather than mobile photo sharing,” Zuckerberg told Congress on Wednesday. “There were many other people at that time. He competed with companies like VSCOCam and PicPlz and companies like Path. It was a subset of the overall location of the addition to which we exist. And by mixing them with us, they definitely went from being a competitor in place of being a mobile camera to an app that we can help grow and help get more people to use. Should be able to ”

Instagram was extremely popular within Silicon Valley before it was acquired, and Facebook was not the only bidder interested in acquiring it. Twitter, which had helped users in their early days to find friends using their Twitter on the app, made an aggressive pitch to buy the company. As Sarah Fryer stated in her book this year No filter, Twitter offered company stock between $ 500 million and $ 700 million.

But Instagram co-founder Kevin Systrom declined the offer, and in the first week of April 2012, Zuckerberg proposed to acquire the company and 13 of its employees. Systrum’s board, led by early Facebook employee Matt Koehler, encouraged them to attend the meeting. At the time, Facebook was preparing for its initial public offering, and had yet to figure out how it would reach its large audience of desktop web users on mobile phones that were becoming increasingly ubiquitous.

When they met, Zuckerberg offered Systrom to do something he didn’t have on Twitter: relative freedom. In exchange for joining Facebook, the company will give him a lot of resources with which he will build Instagram and let him run as CEO. Sister said, and among the reasons he shared with his board, “If Facebook took measures to copy Instagram or target the app directly, it would make development very difficult,” Fryer reported. Facebook’s orientation guide for new employees had the sentence, “If we don’t make the thing that kills Facebook, something else will happen.”

Systrom famously sold the company for $ 1 billion, though the final purchase price was $ 715 million, as the deal closed after Facebook’s famous rocky IPO, when the company’s stock had lost a lot of its value. (It recovered!) The deal came under a standard review by the Federal Trade Commission in which each company hired its own attorneys to search for any evidence that the deal was anti-competitive and not approved. should go. Facebook argued that it did not compete directly with Instagram – but that Facebook Camera, a recently launched photo sharing app, did and was one of dozens of photo sharing apps on the market.

This approach neatly sets aside the real strategic value of Instagram, helping Facebook to gain the largest user base in the world around which it would go to build a major advertising business. And that value was not widely clear; When the deal was announced, CNN said that Zuckerberg “is paying too much price for a startup that has too many but no business model.”

The FTC refused to prosecute, in part, because conflicting regulation since the 1960s was based on the idea of ​​consumer harm, which was largely measured through price increases. Because both Facebook and Instagram offered their services for free, the FTC believed that this would make it harder to prove that the deal would harm consumers. A possible outcome of the anti-Congress counterclaim hearing is the refinement of that standard to examine deals such as these more closely.

In 2012 both Facebook and Instagram were much smaller than they are today, and it was not clear back then that Instagram, in particular, would evolve to become something larger than a photo sharing app. In recent years, as the past 1 billion users have grown, it has effectively become the sequel to the original Facebook – an all-purpose social network with far fewer viewers than its parent company.

“I think the FTC had all of these documents … and voted unanimously not to challenge the takeover,” Zuckerberg said Wednesday. He said, “Perhaps it is clear that Instagram has reached the scale it is today.” But it was clear at the time. “

The FTC completed its review of the acquisition in the summer of 2012, without any open hearing or issuing public reports. The agency noted that it could reopen the investigation at an unspecified future date, “as the public interest may require.”

The United Kingdom’s Office of Fair Trading also reviewed the deal, as did – in a rare move – the California Department of Corporations. Nor was any reason found to block the deal. Within a few months of the acquisition, Instagram and its 80 million users were Facebook.

Still, Zuckerberg’s email suggests he knew better than regulators how valuable Instagram and other competing startups are – to Facebook.

A senior engineer wrote in an internal Facebook thread in January 2012, “Google+ is a red herring.” We are distracted by a fascinating clone, while people like Instagram and Pinestrest come on the ramp and create new markets that we should come across. “

After the Instagram deal closed, Zuckerberg emailed the engineer, citing the post. He said, “I remember your internal post about how Instagram was a threat to us and not Google+.” “You were basically right. One thing about startups is that you can acquire them often. “

Zuckerberg e-mailed another employee he wrote to congratulate him on his Instagram takeover, “One reason why people underestimate the importance of looking at Google is that we can always buy any competitive startup.” “But we’ll do it a little while before buying Google.”

Leave a Reply

Your email address will not be published.