Power

In antitrust suits, Facebook’s biggest liability is Zuckerberg’s own words

The suits from a coalition of 48 attorneys general and the Federal Trade Commission lean heavily on Zuckerberg's emails.

Facebook CEO Mark Zuckerberg

The lawsuits quote Facebook's CEO extensively on the topic of acquiring potential threats.

Photo: Alessio Jacona

Mark Zuckerberg's private communications about competition have gotten him in trouble before. Back in 2012, just before Facebook went public, Business Insider published a damning trove of instant messages from the CEO's Harvard days, in which he admitted to simultaneously building what would become Facebook and working on a dating site for Cameron and Tyler Winklevoss.

"I'm going to fuck them," the now infamous message reads. "Probably in the year …*ear."

More than a decade since those messages were sent, a lot has changed for Zuckerberg. But the things he has said about would-be competitors — in this case, Instagram and WhatsApp — are, once again, coming back to bite him: probably in the year … *ear.

In two closely-aligned antitrust lawsuits filed against Facebook on Wednesday, attorneys for the Federal Trade Commission and a coalition of 48 state attorneys general repeatedly return to Zuckerberg's own emails and messages to underscore their core allegations of anticompetitive behavior. These emails, most of which were sent around 2012, when Facebook was fighting to stay relevant as consumers made the switch to mobile, might not include as much colorful language as Zuckerberg used back in college. But, the attorneys bringing the cases argue, each one makes clear that the primary reason Facebook acquired WhatsApp and Instagram was to nuke the competition.

"Billions were thrown at smaller companies in an effort to get them to sell," New York Attorney General Letitia James, who is leading the states' suit, said during a press conference Wednesday. "Facebook would try to squeeze every bit of oxygen out of the room for smaller companies that refused to be bought."

In a statement Wednesday, Facebook's general counsel, Jennifer Newstead, accused the lawyers behind the lawsuits of creating a "revisionist history," noting that the FTC reviewed and approved both transactions in the past. "Now the agency has announced that no sale will ever be final, no matter the resulting harm to consumers or the chilling effect on innovation," Newstead wrote. "This lawsuit risks sowing doubt and uncertainty about the U.S. government's own merger review process and whether acquiring businesses can actually rely on the outcomes of the legal process."

Both complaints repeatedly point to a series of emails that also came up in a recent report by the House antitrust subcommittee. They're from an early 2012 exchange between Zuckerberg and Facebook's then-chief financial officer, David Ebersman, in which the two men discuss whether Facebook should consider buying Instagram. Ebersman asks Zuckerberg whether he's trying to "1) neutralize a potential competitor? . . . 2) acquire talent?. . . 3) integrate their products with ours in order to improve our service? . . . [or] 4) other?"

Zuckerberg responds that it's "a combination of (1) and (3)," neutralizing a competitor and integrating Instagram's products. He then goes on to explain a theory of "network effects" in tech that would make it difficult for Facebook to ever overcome Instagram's lead.

"There are network effects around social products and a finite number of different social mechanics to invent. Once someone wins at a specific mechanic, it's difficult for others to supplant them without doing something different," Zuckerberg wrote. "What we're really buying is time."

In another exchange that same year, Zuckerberg mused about WhatsApp's growth, acknowledging that it is "legitimately a better product for mobile messaging than even our standalone Messenger app."

"Unfortunately for us," Zuckerberg wrote, "I don't think there's any way to directly minimize the advantage which is their momentum and growth rate."

And so, Zuckerberg's messages indicate, an acquisition became an appealing option for the same reason Instagram had been. "WhatsApp is already ahead of us in messaging in the same way Instagram was 'ahead' of us in photos," Zuckerberg wrote in an April 2012 message quoted in the FTC's complaint. "I'd pay $1b for them if we could get them."

In the end, Facebook paid $19 billion.

The broad contours of the FTC and the states' cases are unsurprising. Facebook's fears about Instagram and WhatsApp are, at this point, the subject of innumerable news articles and books. But the sheer quantity of raw material that the lawsuits compiled, particularly from Zuckerberg himself, is novel. "I think the one thing I was really excited about from these complaints is that they actually produce additional damning evidence," said Sally Hubbard, director of enforcement strategy at Open Markets Institute. "Because they had subpoena power, they had even more documents and damning evidence that shows the anticompetitive intent."

The states' complaint pays particular attention to Facebook's treatment of third-party apps it viewed as potential threats. In one previously reported case, Zuckerberg personally approved cutting off the short-video app Vine from an API feature that allowed people to find their Facebook friends on the app. "Yup, go for it," Zuckerberg wrote to a member of his team. In another case, the complaint quotes Zuckerberg commenting in August 2013 on an app called Circle, telling other Facebook executives that Circle was "very similar to the local vision you described to me a while ago [for Facebook]." Four months later, Facebook also cut Circle off from the Find Friends feature.

"Facebook roughly cut off apps viewed as a competitive threat. Some of these companies experienced an almost overnight drop-off in user engagement and downloads and their growth stalled," James said. "They also sent a clear message to the industry. Don't step on Facebook's turf or, as one industry executive put it, 'You will face the wrath of Mark.'"

Both the FTC and the states are asking the court to require Facebook to halt these practices and possibly even undo acquisitions that the court determines to have been illegal. The case is bound to be a long, drawn-out retread of Facebook's decisions over the last decade. But it will also be an illuminating probe into the mind of one of the most powerful men in the world and how he held onto that power by undercutting his competition — from Facebook's earliest days.

Emily Birnbaum contributed reporting.

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