Regulation

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.

Had Meta never bought the app, Schultz says Instagram would have continued to copy Twitter. “I think Twitter had a less effective growth team than us,” he says.

After a brief dip in Instagram’s growth rate in 2018 due to changes in how Facebook promoted it, the app’s growth rate recovered and continued to go up and to the right, a chart shown in court shows. Schultz says the results mean the change wasn’t as dire as Systrom might have believed.

For all the tension that came from Facebook’s decision to promote Instagram less from its app, it wasn’t all that consequential for Instagram’s growth in the end, Schultz testifies. Instagram’s growth rate dipped 14 percent, but it was still growing users overall. Ultimately, Schultz says, it was a “blip.”

Schultz acknowledges there was tension between his central growth team and Systrom in the mid-2010s, which we heard about from Systrom’s perspective a few weeks ago. While Systrom described a situation where Meta pulled back growth staff for Instagram, Schultz says Systrom was uninterested in the tweaks his team suggested to grow the app. It was only after the growth team pulled back from Instagram that Systrom realized their value and wanted them back, Schultz recalls.

The FTC is expected to wrap up its case this week, meaning Meta will then get the chance to call its own witnesses for its case-in-chief. Meta CMO Alex Schultz is back on the stand testifying about the staffing and expertise the company gave Instagram after its 2012 acquisition. He says that for the first three to four years post-deal, Meta gave Instagram co-founder Kevin Systrom pretty much “everything he wanted.”

We saw this coming with President Trump and Elon Musk pummeling federal agencies including the EPA with budget and staffing cuts. DOGE kneecapped the agency after it cracked down on Musk’s companies, we reported last month. Health and environmental advocates are fighting the deregulatory spree at the EPA.

Schultz says when he took on the task of leading the company’s brand reputation, it was like “catching a falling knife.” But things have since gotten better. He says relative brand sentiment for Meta falls somewhere in the middle of other companies it measures against, putting it pretty close to the bank that in 2020 settled a criminal investigation with the US government over alleged fraud.

When Instagram ran a test showing one group more friends and family-focused content, it reported in 2016 that it found a 7 percent increase in time spent on the platform and a 7 percentage point increase in user retention. Turning to cross-examination, Meta’s attorney points out a lot has changed in the market since that period.

Meta CMO Alex Schultz is back on the stand after Mosseri finished testifying. In a 2014 email shortly after Facebook announced its WhatsApp acquisition, Schultz responded to an executive concerned that the Messenger team was “demotivated by the announcement.” Schultz said he was “more motivated than ever to still be working on messenger.” The first explanation he listed: “Have to keep things honest so the deal doesn’t fall through and prove there is competition.”

The FTC revisits the Kardashain-popularized meme pushing back on Instagram’s design overhaul that it later walked back. It’s walking through a 2022 interview with The Verge where Mosseri explained the decision. He testifies that people always complain about change, and that connecting with friends remains an important reason users come to the app, but Instagram has to to adapt the form in which they facilitate that in order to survive.

“I never met a creator who didn’t think they deserved more reach than they were getting,” Mosseri says. But the reality is, he adds, there’s two times as many creators this year than last, so the field is getting more and more saturated. “Even though Instagram might benefit, there are winners and losers within the creator ecosystem.”

Mosseri takes the jab at TikTok after the FTC asks about the reliability of TikTok’s data evaluating how much its features are used. The FTC may be underscoring a TikTok executive’s earlier testimony that it’s “friends” feed only makes up a small percentage of videos viewed on the app. That goes toward the FTC’s argument that users don’t primarily go to TikTok to connect with friends, as they more often do with Instagram.

That’s how Mosseri describes Facebook’s decision to buy Instagram in 2012. He says that both companies “benefited greatly” — Instagram, from Facebook’s resources and experience, and Facebook, from the founders’ talent for building compelling products.

Mosseri found himself in the middle of the tension between the two companies, having moved to Instagram from Facebook. He understood some of the concerns the Instagram founders had about things like discontinuing some links from Facebook to Instagram, and similarly disagreed with certain changes from Facebook, but “also thought they were being made more of than they needed to be.”

Mosseri estimates this is the most Instagram has spent in a given year on creator incentives. Instagram sees creators as a good source of content after many rank-and-file users began posting fewer of their own updates.

That’s how Mosseri describes the state of things in late 2021, where a chart in a board presentation shows relatively flat growth in time spent on Instagram. If you were to look at Instagram’s growth here in isolation, he says, it would look like Instagram had some positive, modest growth. But comparing it to TikTok’s explosive rise tells a different story.