what a facebook photos product manager thinks about antitrust

Prior to Facebook’s acquisition of Instagram, I served as the product manager overseeing Facebook Photos. My prior company, Divvyshot, an early iOS photo-sharing application, had been purchased by Mark Zuckerberg. My role involved frequent discussions with Mark regarding the evolving landscape of social media and the emergence of new mobile applications, and Instagram was often discussed as a competitive force.

Given the current legal action initiated by attorneys general from 48 states and the Federal Trade Commission concerning Facebook’s acquisition of Instagram, it’s understandable to assume I hold a firm viewpoint on the matter. Indeed, I do, both from my experience as a former Facebook Photos product manager and as a representative of a company Facebook had previously acquired. In a sense, I represented a preliminary step before the larger transaction. As an American consumer, I believe a successful outcome for the FTC would undoubtedly hinder innovation.

A central issue in this antitrust case revolves around whether Facebook acquired Instagram to neutralize a potential competitor. Existing documentation suggests Mark Zuckerberg viewed Instagram as a threat, a perception that aligned with my own understanding during our conversations.

My tenure at Facebook was relatively brief. Driven by confidence in my mid-twenties, I decided to launch another venture. Looking back, I realize I departed somewhat hastily and without providing substantial notice. I left shortly after initiating a project to significantly improve our mobile Photos products, a project that ultimately remained unfinished. Months later, Mark began discussions with Instagram, and the acquisition was finalized exactly one year after my departure.

Despite these circumstances potentially indicating anti-competitive intentions, I remain unconvinced that the current antitrust lawsuit will ultimately benefit the startup community or consumers in general.

A common saying within the startup world is to “think from first principles,” and in this situation, it proves valuable. The fundamental reason governments regulate monopolies is to “protect competition and benefit consumers.” In this antitrust suit against Facebook, the stated goal is to safeguard Facebook’s competitors within the startup ecosystem.

Two key pieces of legislation are at the heart of the accusations against Facebook. The first is the Sherman Act, which prohibits the maintenance or acquisition of a monopoly. The second is the Clayton Act, which further restricts anti-competitive mergers and acquisitions.

A fundamental requirement for an antitrust claim – specifically, violating Section 2 of the Sherman Act, as Facebook is accused of – is demonstrating that a company has leveraged its monopoly position to “harm society by reducing output, increasing prices, and stifling innovation” compared to a competitive market. The Department of Justice also emphasizes that a significant market share, “in excess of two-thirds for a considerable period,” is a key factor in establishing a monopoly.

Before examining Facebook’s situation, let’s consider a successful example of antitrust enforcement. Critics of Facebook frequently cite United States v. Microsoft Corp. as a relevant precedent. In this case, Microsoft was accused of monopolistic practices stemming from its integration of Internet Explorer with Windows. I concur with this antitrust action because Microsoft did possess a monopoly. In 1998, when the case was filed, Microsoft controlled 86% of the operating system market. It’s clear they used bundling tactics to artificially expand Internet Explorer’s market share, demonstrably reducing “output” and “innovation” (few would fondly recall Internet Explorer) for society.

Establishing a comparable monopoly for Facebook is considerably more challenging. For example, the FTC’s lawsuit seeking to divest Instagram implies that Facebook holds a dominant position in the digital advertising market. However, research from EMarketer indicated that Facebook controlled only 23% of this market in 2020, significantly less than the required two-thirds. Therefore, labeling Facebook a monopoly is not a straightforward conclusion.

Now, let’s consider who would genuinely benefit from this antitrust action.

Not the founder of the next disruptive social platform. With the FTC scrutinizing acquisitions, launching a startup becomes less appealing and more precarious.

In Silicon Valley, every founder aspires to be a disruptor. However, both they and their investors recognize the wisdom in the saying, “if you can’t beat them, join them.” I experienced this firsthand when I sold Divvyshot to Facebook in 2010, shortly after my company’s funds were depleted.

Without the possibility of lucrative acquisitions by larger companies, fewer entrepreneurs would take the risk of starting businesses, and venture capital investment would likely decrease. Major technology companies would be more inclined to replicate the products of emerging companies rather than acquire their teams. It’s important to remember that being acquired often represents success for most startups and their founders, who may lack alternative favorable outcomes.

Not the consumer. For consumers to benefit, one must believe that either (a) Instagram would have achieved greater success independently, or (b) Facebook’s actions discourage other competitive startups.

The former is a subject of ongoing debate and is inherently subjective. Regarding the latter, a reduction in available funding and founders inevitably leads to less competition across all sectors. This competition is what drives the proliferation of apps on our smartphones, offering numerous options for every need. Instagram’s $1 billion exit spurred the creation of similar platforms like Vine, Flipagram, VSCO, and ultimately, TikTok.

As Mark Zuckerberg noted about their acquisitions, “One way of looking at this is that what we’re really buying is time.” Maintaining a leading position in the technology industry is difficult. History suggests that today’s leaders may become tomorrow’s Yahoo. It’s this inherent pressure, not the threat of antitrust action, that motivates companies like Facebook to invest in innovative products in new areas like VR to avoid becoming obsolete.

It’s time to pursue a different approach. While it’s crucial to foster competition within the U.S. technology sector, we should explore new antitrust legislation that focuses on positive outcomes rather than punitive measures.

The U.S. government could consider facilitating acquisitions by these companies through ecosystem development. Instead of blocking acquisitions, a requirement could be implemented that the acquiring company invests a certain percentage of the acquisition amount into minority stakes in other emerging startups.

This could create new dynamics, with innovation emerging as the primary beneficiary. For example, these technology giants could fund startups that challenge their established competitors. As an illustration, Facebook could use this venture arm to support ideas outside their core business in the Future of Work, fostering competition with Microsoft.

This capital flow from established companies to startups would encourage competition while still allowing incumbents to benefit from economies of scale, which contribute to lower consumer prices, a higher quality of life, and research-driven innovation that no economy wants to lose.

A more significant monopoly is at stake. Silicon Valley remains the most competitive and innovative sector globally. Regions and governments worldwide have attempted to replicate our “secret sauce,” but have often been hindered by regulation, corruption, or anti-capitalistic policies. Should we now begin to emulate their approaches?

Until recently, this question was purely hypothetical. Silicon Valley’s position as the innovation leader was never truly threatened. We benefited from advantages such as geographic concentration, well-developed capital markets, limited regulation, and a welcoming immigration policy (half of Silicon Valley startups are founded by immigrants). Are we certain we shouldn’t reinforce this successful formula?

Meanwhile, China has embraced economic liberalization. Shenzhen, China’s technology innovation hub, has experienced an average annual GDP growth of 20.7% over the past 40 years, even surpassing Hong Kong. I view TikTok’s recent surpassing of Facebook as the most downloaded application worldwide in 2020 as a concerning indicator.

While users may be hesitant to share personal data with foreign companies under autocratic rule, most prioritize the engaging experience offered by platforms like TikTok, even during times of isolation.

We must adopt a nuanced understanding of monopolies and how we regulate our most successful businesses. We risk winning a battle with Facebook only to lose the larger war. Losing that war could mean driving the next Instagram out of Silicon Valley.

And that, ironically, could mean that the United States government is dismantling its own technological dominance with this approach to antitrust legislation.