More from FTC v. Meta: the antitrust battle over Instagram and WhatsApp

Presented with a side-by-side screenshot of the three short-form video products on the same Saturday Night Live video, Hemphill takes a long pause to identify the apps before he’s saying he’s not sure which is which.

Meta’s lead attorney Mark Hansen is using cross-examination to attack Hemphill’s credibility. Hansen calls him the “very definition” of a witness with preconceived notions about Meta’s liability and brings up what a press report called a “roadshow” he embarked on in 2019 with former Biden administration official Tim Wu and Facebook co-founder Chris Hughes to encourage state and federal enforcers to look into Meta’s potentially anticompetitive behavior. Hansen charges that Hemphill hasn’t adequately disclosed this activity, which the Meta attorney characterizes as advocacy for a cause. Hemphill says he wasn’t advocating that they bring a case, but to probe and find out if a valid case existed.

After Hemphill describes how Meta’s increased rate of showing users ads is negative for consumers, Boasberg asks him to square that notion with his claim that WhatsApp and Instagram would have had to make money eventually, whether or not they were part of Meta. Hemphill says that even if both served ads to users as independent apps, it might have been to a lesser degree than they do now, or they might have offered users other benefits in exchange.

This is the message Boasberg says he’s received throughout trial, and he’s trying to square it with Hemphill’s assertion that users still want to see posts from their friends, even as they spend more and more time watching videos from people they’re not connected with. “Shouldn’t we assume that’s what they want, and therefore, what you’re terming underinvestment is just a shift that follows where users want to be?” Boasberg asks. Hemphill says Meta, not its users, determine the makeup of posts they see in their feeds, and even if friends content is declining as a percentage of the app, it’s still very large in absolute terms. And even if Meta makes less money from ads in Reels, a lot of content from people users don’t know now shows up in their feeds, too.

Boasberg pushes back on Hemphill’s framing of the Instagram acquisition as an effort to maintain a competitive moat. Hemphill references a 2012 email where Zuckerberg discussed the importance of keeping Instagram running after buying it to prevent another app from filling the vacuum. But Boasberg says this seems contrary to what actually played out: Meta invested in the app and it experienced massive growth. “This competitive moat seems a minor factor in its decision making,” he says. Hemphill says the moat was Meta’s intent at the time, even if the app ultimately exceeded expectations.

Boasberg brings up Meta CMO Alex Schultz’s testimony of “explosive growth” for Instagram and says that it would be “pretty hard” for Instagram to grow much larger than it already has in the US, since it already has most eligible US users on its platform. Hemphill says there’s other measures on which this whole slice of the social media market might have been better for consumers if Meta never bought Instagram, like consumer welfare and the quality of apps.

Meta paid a $6.5 billion to $10.9 billion premium on its acquisition of WhatsApp, depending on which valuation you look at, Hemphill says. This can’t be explained away with standard business reasons for paying more for an acquisition, like synergies that would be particularly beneficial, because he says there’s no evidence Meta analyzed this. Instead, he says, the premium “reinforces the conclusion that the project was an anticompetitive project.”

And the most likely way it would have done this without Meta would be building its own personal social networking service that competed with Facebook and Instagram, Hemphill says, since this is how messaging apps in other countries monetized. Boasberg brought up testimony we’ve heard that WhatsApp’s founders were resistant to this kind of pivot, but Hemphill says that they still had investors and employees to answer to who would eventually want a payout. Plus, he says, Meta eventually was able to convince them to monetize the app somehow.

Hemphill compares Meta’s claims that it’s power is constrained by newer apps like TikTok to Microsoft’s claims of being constrained by the PalmPilot and AOL at the time it was found to be an illegal monopolist. He says Microsoft sustained its dominance even in the face of competition “more or less on the margins.” He also says that what Meta calls “headwinds” from TikTok didn’t stop the company from beating its own revenue projection in 2024, which already forecast 78 percent growth from 2020.

Meta has argued that users’ reports about how much they think the company cares about them is mostly a reflection of media reporting, rather than actual changes to Meta’s products. Boasberg asks Hemphill whether changes in user sentiment really are about the actual products or perceptions of them, and whether that matters. Hemphill says that even in the case of Cambridge Analytica, where reporting came out long after the privacy incident at the heart of the story, “it’s not that the Facebook business in fact changed with the revelation, but what did happen was a sort of scales falling from your eyes effect, where users became aware of this possibility.” He adds that Meta pays attention to user sentiment “in a way that is not just managing their reputation.”

Meta shows fewer ads to what they call “needy users” whose engagement drops more significantly when they’re shown more ads. Hemphill calls this a “discount” for those users — and a sign of price discrimination by an illegal monopolist.

The FTC’s economic expert Scott Hemphill is back on the stand testifying about how Meta’s alleged monopoly power allows it to offer different prices to different users and across its services. For example, Meta didn’t show ads on Reels for a while, but it did show ads in other parts of the Instagram app. Hemphill compares this to what sounds like the antitrust case against Whole Foods — saying that a supermarket specializing in premium, natural foods might have high margins on its organic mangos, but low margins in areas on which it competes with many other stores, like pantry staples. He says this is similar to Meta lowering prices on the product where it competes with other apps (short-form videos) but not on the one where it dominates the market (friends and family sharing on Feed and Stories).

The judge is using Hemphill’s testimony to work through some remaining questions he has in how to think about reaching a verdict in this case. It’s too early to say what this means for his thinking, but his questions indicate that some of Meta’s arguments are at least spinning his wheels. He asks, for example, if users’ feeds are increasingly made up of posts from accounts users aren’t connected to (i.e. algorithmically-recommended influencer posts), then can time spent on the Instagram feed or stories really be used as a proxy for users’ wanting to see more posts from their friends?

Just because an alternative service can fulfill some of what a monopolist offers doesn’t make it an adequate substitute. Hemphill gives the example of Google’s search services. Sure, users can do a shopping search on Amazon or a travel search on Expedia, but these are “slivers of what it does,” Hemphill says. Boasberg’s own colleague in this courthouse found Google to be a monopolist for general search services despite this.

Boasberg posits a hypothetical: would it matter if only 10 percent of users’ time on Meta’s apps were spent on friend and family sharing — the use case the FTC says Meta monopolizes? This seems to be a key lingering question for the judge. “Does it have to encompass their core use? So, the majority of what users go to the platform for?” he adds. Hemphill acknowledges the slippery slope, but says that even at a hypothetical 10 percent of its business, that would still be “large and important and subject to monopolization, and it would still be something that we care about.”

Boasberg asks Hemphill to explain why the way users choose to spend their time when one app is down wouldn’t be relevant to show which apps are substitutes. “In fact, why isn’t that the best indicator about what is a substitute?” he adds. This is exactly the argument Meta’s made since the first day of trial: that users spending more time on Instagram after TikTok’s brief pre-ban shutdown shows users see it as a viable alternative.

Hemphill uses this to show that friends and family posts, found mostly in the Feed and Stories, are still core to the app. Over a few days in April 2022, less than 1 percent of Facebook users and about 5 percent of Instagram users who watched Reels did not also spend any time in the Feed or Stories features. “The point here is that yes, users are in addition spending time on Reels, but that Feed and Stories remain fundamental to at least part of the experience of the vast majority of users.”

Judge Boasberg asks Hemphill to “square” Meta’s claim that user interest in friends and family posts are declining with Hemphill’s claim that Meta’s apps are degrading in quality because they’re showing users less of this content. Hemphill says there’s evidence users really do want to see posts from their friends and they show “frustration that they don’t get it.” So if Boasberg finds users do want this kind of content and Meta isn’t serving it, that can show it’s degraded the quality of its apps.

New York University professor Scott Hemphill takes the stand, fleshing out the economic argument behind the government’s market definition, and how Meta has — in his expert opinion — harmed competition and consumers with its monopoly power.

In a 2022 document, Meta found that Instagram was experiencing “downward pressure” from TikTok “on interest content consumption.” But, it added, “that same pressure is less evident on consumption of friend content, which begs the question: Are we putting enough focus/energy into defending/evolving key jobs we continue to be hired for?”

The FTC makes the point that because Instagram and Facebook have already added most of the roughly 250 million potential eligible users in the US, its user growth rate looks slower, even though it’s still adding users overall. But Schultz says this is exactly why Meta competes with apps like YouTube and TikTok for users to spend more time on their own apps — doubling down on Meta’s argument in the case. “Time is the thing people are all competing for because people are multi-homing, they’re using every app.”

Schultz says he “quibble[s]” with the idea that Instagram had good engagement pre-acquisition. “I didn’t think it had the highest engagement when I got to see the numbers when it was inside,” he says.

The FTC’s theory that Meta’s power is only constrained by these two apps is “ridiculous,” Schultz testifies, concluding his examination by Meta’s attorney.

Creating a social graph of users’ friends, likes, and interests isn’t as meaningful for social apps as it used to be, Schultz says. That’s thanks to advances in AI, which has made it easier to predict and serve content to users they might not have even known they’d like. The FTC says Meta’s network effects and extensive mapping of users’ connections makes it difficult for upstarts to dislodge it.