Regulation

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.

In a March 2020 update to Instagram staff, Mosseri gave a bleak overview of the challenges the company was facing. “The engagement trends, particularly in the US, have been concerning. Time spent has dropped, stories consumption and production have plateaued, Feed’s decline has continued, and time in Explore has been sliding since the summer of 2018,” he wrote, blaming the slide, in part on some of the company’s own mistakes “and competition from TikTok and Snapchat.”

The first time around, Instagram tried to build its short-form video concept on top of Stories, which he says was “not a sound foundation” for the product. “I think we could have and should have been more aggressive,” he says about building Reels and competing with TikTok.

Mosseri says Meta is always focused on competition, but TikTok represented the greatest he’s seen during his time at the company. After seeing engagement plateau in 2019, however, the company has since bounced back thanks to building out Reels and better AI-powered recommendations. “We’ve seen a lot of growth for the overall app, though the percentage of the app spent on friend content has gone down,” Mosseri testifies.

Mosseri testifies that “growth is everything” to Instagram and the company was deeply concerned to see feed impressions declining and engagement on stories plateauing in 2019. “Competition from TikTok is a big concern,” a presentation from the time says, adding a “conservative estimate” that 40 percent of the decline in time spent on Instagram was due to TikTok, and 23 percent in the US in particular.

Mosseri says he used to think of those platforms as more “lean-back experiences,” but that’s changed in recent years. TikTok is now “every bit as participatory as we are at this point” and as YouTube has leaned into Shorts, it’s “brought them closer to us.” Mosseri notes that TikTok now has a friends tab, which a TikTok executive testified earlier in trial only accounts for about 1 percent of the videos viewed on the app.

In a January Reel, Mosseri announced a new feed within Instagram of videos their friends have liked in an effort to make sure Instagram is not just “a lean-back experience, but a participatory one, a social one.” It underscores how Instagram still sees connecting friends as a core experience on its app. Mosseri testifies he was distracted watching the video because “I’m mostly focusing on the one comment that said ‘definitely not a good idea.’”