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- [00:00]
Alan Chappelle
Alan I'm Alan Chappelle, host of Market, where we talk about the big issues impacting digital media, from privacy to antitrust and the impact of big tech. We take the big ideas and break them down to help you see the future of the ad space. Join me wherever you listen to podcasts. Welcome to the Monopoly Report. The Monopoly Report is dedicated to chronicling and analyzing the impact of antitrust and other regulations on the global advertising economy. I'm Alan Chappelle. This week my guest is Brendan Benedict. Brendan is a litigator with focus on antitrust and commercial litigation. He has his own law firm, the Benedict Law Group, which I can tell you from personal experience is a really, really challenging endeavor. Anyway, Brenda has been covering the Meta antitrust trial for Big Tech on Trial, which is Matt Stoller substack, which you should definitely check out. In addition to reading Brendan's covers on Substack, I've spoken with him a few times. During the Meta trial. Brendan's superpower is getting at all of the important details of the trial, incorporating those details into a fantastic baseline knowledge of antitrust law and still keeping his eye on the big picture. Anyway, if you're just looking to understand the essence of of meta and the FTC's core arguments, I think you really enjoyed this discussion. So let's get to it. Hey, Brendan, thanks for coming on the pod. How are you, man?
- [01:29]
Brendan Benedict
I'm good, Alan. Thanks for having me.
- [01:32]
Alan Chappelle
My pleasure. So I feel like this trial has been a bit undercovered in the ad space, which is one of the reasons I was really happy to have you on. So what is the Facebook v. Meta case about? What's the core of the FTC's argument in this case?
- [01:50]
Brendan Benedict
So this is the FTC's trial to break up Meta and really what it wants to do is unwind Meta's acquisition of Instagram in 2012 and WhatsApp a couple years later. So the FTC alleges that Meta has monopolized a market for personal social networking services and that Getting Instagram and WhatsApp helped it stay a monopoly.
- [02:14]
Alan Chappelle
So what is Meta's core argument?
- [02:17]
Brendan Benedict
So Meta's argument, there's a couple pieces to it, but basically that competition is robust, that it's not a monopolist because you have to look at TikTok and YouTube and the way that social networking has changed just in the past couple years, even since the pandemic where everybody is focused on short form video is a new form of entertainment. And in that world the landscape looks a lot Different. So the way that we've changed how we use social media, and that's what Meta says we have to look at. And on top of that, it has a bunch of reasons why it was a great thing for the world for Mark Zuckerberg to be at the reigns, for WhatsApp and Instagram to have explosive growth and new investment.
- [03:02]
Alan Chappelle
Okay, so the one thing I've learned, and look, I'm a privacy guy, I'm certainly not an antitrust guy, but the one thing I have learned just in paying some attention to all these cases, that the market definition seems to be really important. And you just alluded to one of the challenges here, because this is talking about behavior that's over a decade ago. And so presumably in the fast paced world that we know as the interwebs, these types of things change. So you know, what is the market definition that the FTC has come to the table here and why is that important in this case?
- [03:36]
Brendan Benedict
So the FTC has to win its market definition just to get off the starting block in the case. And its proposed relevant market is a market for personal social networking services. We call it the PSN market. And in that market, it says, are Facebook, Instagram, along with Snapchat and a smaller app called MeWe. And outside the market are TikTok, YouTube, LinkedIn X and a whole bunch of smaller players, Pinterest. That it's a don't compete on this core use case of friends and family sharing. So while there's a lot of places you could go to watch in a short form video, if the FTC is right, that this core use case is seeing posts from your family and friends, then those are the apps that it's saying are the most important for that. And the reason why, you know, sort of winning the contours of that market definition are important is that then that sets up the analysis of market power and provides a basis for measuring Meta's market shares in the relevant markets. So the broader the relevant market, the lower Meta's relevant market share, the better chance Meta has of winning the trial. Conversely, the smaller the market is, the bigger that market share, the more that it looks like Meta is a monopoly. So a lot rides on the FTC's ability to win its market definition because that sets up the analysis for the rest of the antitrust liability.
- [05:01]
Alan Chappelle
So another thing that I've sort of learned, and this goes back to the 80s, is that, you know, the, the market definition has been interpreted in such a way that if you don't meet a certain threshold it's like you can't even bring a case. It's sort of from my perspective. And so I guess I'm going to ask it this way. Can Meta win if they lose on the definition of market?
- [05:24]
Brendan Benedict
Meta can still win. I think it's fair to say that most antitrust cases can get resolved at the market definition st, and I think the ftc, depending on whether it can show direct evidence, would say that it doesn't necessarily need to define a market, and you could just infer that a market exists from direct evidence of any competitive harm. But even if Meta doesn't win market definition arguments, it's got a lot of other arguments in the hopper. This is a monopolization case, so we're using the burden shifting framework that's been called the rule of reason in the context of section one of the Sherman Act. This is section two, but the tests are largely the same. So at the first step, the FTC has to show in any competitive effect from the acquisitions of WhatsApp and Instagram. If it does that, the burden shifts back then to Meta, which gets to show a pro competitive justification for those deals. There's some nuances around that. Typically it has to be specific to the transaction or the least restrictive way of achieving those efficiencies. But if Meta makes that showing and it's a more forgiving showing in a monopolization case, the burden then shifts back to the FTC to show that the transactions were more anti competitive than not that the anti competitive effects outweighed the pro competitive justifications. So while Meta certainly spent a lot of this trial on market definition arguments, there's a lot going on there on pro competitive justifications where even if it loses market definition, it still has this defense, this way to avoid liability.
- [06:58]
Alan Chappelle
So what are Meta's pro competitive justifications?
- [07:02]
Brendan Benedict
Sure. So a lot of it has to do with investment and sort of what you get by being on team Meta for Instagram, it's unlocking Facebook's infrastructure, its physical servers, but also its processes, its tools, its software in particular around fighting spam, which was an early issue for Instagram as it was scaling up. So everybody at the trial seemed to agree that, you know, being part of Meta for Instagram really helped it scale and grow faster than it would have just on its own or, or if it had another acquirer. And the same is true for WhatsApp. WhatsApp started as a super small app with a really lean and mean team. It was great at what it did and it was growing very quickly. But to grow to billions of users, you have to kind of take it to the next level. So that's what Meta argued throughout. You know, there was access to, as they called it, the older sibling, some guys at Instagram called it, where Facebook had already scaled and already grown way beyond where Instagram was at. And they went through the growing pains, the hiccups, the different tools of the trade that they picked up, that they were able to then pass along to Instagram and help it come along quickly. So that's the focus of it. There's a lot of nuance within that, but it really has to do with scaling faster, improving quality faster, and helping these small apps grow with access to a big footprint and a professional corporate organization.
- [08:34]
Alan Chappelle
Okay, so it's interesting that that seemed to be Meta's core argument, because you had the Instagram founder saying what seemed to me to be the exact opposite of that, saying that, you know, they got in there and that in his experience, it was Kevin Systrom. He came in there and said, wait a minute, no, they actually weren't investing in us. And what we found is that by way of comparison, the Facebook Blue was getting a ton more funding, was getting additional staff, and he seemed, at least as I read through your summary, it seemed like he provided a whole bunch of pretty granular examples that what Metta is saying was. Was not true.
- [09:14]
Brendan Benedict
Right. And so, you know, I think Systrom is effective in. If you think about Facebook as the older sibling, it's the older jealous sibling that has to deal with these feelings as, you know, their. Their new sibling comes along. And, you know, I think there were ups and downs in that relationship over time. But it really came to a head at one point around 2018, shortly before Kevin Systrom left the company after the acquisition, many years after, where Mark Zuckerberg, you know, cuts off Instagram from all the tools, you know, he's having a fight with Systrom. There's some exercise where Mark instructs somebody at the company to make a list of everything that Facebook was doing to help Instagram. And then he turned that all off in sort of a jealous retaliation. And, you know, Kevin Cistro made it sound like there was really just this jealousy in Mark's mind of what was the better app, because Facebook came along first. And I think Mark had a lot of pride of being the first developer to not sell out to somebody else to scale an app to a billion users on its own. Now here comes Instagram to kind of take some of those resources and grow pretty quickly, too. And so Ultimately, it ends in this jealous sort of retaliation where Instagram gets unplugged from the tools that Facebook is giving it. And it's, I think, a little bit of a growth slowdown. I think we saw a number at one point that was about 14% slowdown in growth after that happened in 2018. And then Kevin leaves the company. So I think in any relationship like this, it's a give and take. And we certainly saw examples going both ways where sometimes Instagram would ask for additional headcount to deal with a particular problem, and it wasn't getting that, especially with video back in the early days where Facebook first started focusing on that. And Instagram would seem to be a natural place to move from photos to video. But they weren't getting this allocation of engineers from the whole company to work on video, at least not at first. On the other hand, you know, there were some things that Instagram got a, got a boost on. I think we heard testimony at trial from an early Instagram engineer who said, you know, the app was constantly on fire, it was constantly breaking. He had to interrupt Christmas dinner to fix the app because it had crashed again. And, and eventually, you know, those kinks got worked out by becoming part of Facebook, which had, you know, a lot better tool set for troubleshooting and, and making sure that the app doesn't go offline. So, you know, it's, it's hard to see how that comes out. But certainly I think there were steps that Facebook took in the end that, that hampered Instagram's growth, where, you know, maybe if there were a different acquirer, Instagram had stayed independent, it wouldn't be hamstrung in that way.
- [12:00]
Alan Chappelle
Yeah, yeah. And that's, I, I guess that's what the judge is ultimately going to have to decide is which, which argument comes off as, as being the more convincing version of reality. But there is certainly merit to both sides, I think. So how is the FTC arguing that consumers were harmed here? And this is sort of the age. Why don't I say age old? But the key challenge to competition law in the Internet age, because it isn't often about consumer price because consumers aren't paying anything for these services. So, you know, is this clearly a ad load and shitification argument or is there more nuance to that?
- [12:39]
Brendan Benedict
Yeah, I think that's right. And the fact that there's no, you know, price that a customer sees, it's an issue at each level of the antitrust analysis because it prevents you from doing some of the classic tools of Antitrust to show, you know, a price increase which could demonstrate monopoly power and anti competitive effects. So what the FTC does instead is argue basically there's been an increase in the quality adjusted price, so the price is zero. But if the quality goes down then, then that ratio, the quality that you're getting above the free price is decreasing. And one way, the primary way that it explains that is by pointing to increased ad load. So ad load as the percentage of impressions that ads make up of all the impressions you see of content on Facebook and Instagram, and that's definitely increased over time. The FTC argues that that's in effect a form of a price increase. One way you could think about it is as a time tax where the amount of time you have to spend looking at content you don't want to see, well, you have to spend more time to see the content you do want to see. We heard from Steve Allison, the head of Facebook at one point that it might take 10,000 posts in a day just to see all the recent posts from your connected friends and family on Facebook. So that's, you know, that's steep. I call it the infinite scroll. You know, you just keep going and going and it could take all day. Didn't always used to be that way. And you know, I think one thing that's interesting is right before this trial started, Facebook launched something called the Friends tab, which is a new feature. I think it's only available on the mobile version of the app where you can go and you just sort of see a classic version of Facebook where it's posts from your connections and there's no ads in that. You have to find it. I think a lot of people don't know about it yet, so there wasn't a lot of data on this at trial. But you can definitely see the difference between, you know, your home feed, which is almost all now unconnected content, short form video advertisements, versus the core of, you know, what do I actually want to see from my friends? So the more time you have to spend seeing that, the more ads that you see. It's like a price that a customer pays. And that's where the FTC is making its case.
- [15:04]
Alan Chappelle
But I've read, and this is over the years, and this is my recollection, which I'm sure is not perfect, but from what I've read, Zuck actually really held on to the friends and family concept for maybe longer than he should have and that the only reason that they started pivoting to offering the long form or the Short form video was due to some of the competition from TikTok, I guess, YouTube shorts. And so did that make its way into the trial?
- [15:33]
Brendan Benedict
Definitely. That's been a big theme of Meta is that the nature of social networking has changed and the way that people are spending their time has changed. So Meta sees competition for time and attention from users, especially because they say you have to look at not just the user side, but the advertiser side of these platforms where they're monetized with advertising. So the more time and attention you have from users, the more ads you can sell. That's how the business monetizes and is able to support the consumer side. So what they noticed, especially you know, starting around 2020 during the pandemic, was that the nature of how people were spending their time was changing. TikTok was rocketing in time spent from users and they were spending a lot of time looking at this unconnected short form video content where TikTok had really mastered an algorithm to serve you up all sorts of interesting content. And Facebook and Instagram hadn't gotten there yet. So there's some evidence that time declined. The users were spending on Facebook and Instagram in response to TikTok in favor of YouTube. And so when they started seeing data about this, they sort of doubled down their efforts and they introduced a lot of features like, like Meta does that are sort of copied or borrowed from other apps. So, you know, disappearing stories is something that they took from Snapchat. And in the same way the Reels feature, which is the short form video feature on, on both Instagram and Facebook, that looks just like a TikTok video, it looks like a YouTube short. And that in turn, as Facebook and Instagram have invested in that, has made up an increasing amount of the percentage of time that people spend on Meta's apps. What the FTC says though is that the absolute time that people are spending on friends and family content hasn't changed all that much. What's happened is that people are just spending a lot more time in general on the apps because it takes longer to watch videos. So it's sort of both. And you know, the friends and family use case I think is still there, but people are spending a lot more time overall on the apps and the overwhelming or at least the majority percentage of that additional time that they're spending is on the short form video.
- [17:51]
Alan Chappelle
So as you walked in on day one, I would just imagine you sort of had a sense of what the case was about. And I'm curious as to whether Your views changed after having sat there for a couple of weeks and heard the testimony. So, you know, what's the delta between where you started in terms of your views and then how those evolved as the case went on?
- [18:13]
Brendan Benedict
Yeah. So, you know, I think I came into the trial thinking that it was going to be a close case. I think there was a perception in the media or the antitrust bar that this was a case the FTC was going to lose. My view is that, you know, if a case goes to trial, it's probably because it's a close one. If it's too weak, it's not going to get prosecuted. If it's really strong, it's going to get settled and resolved. So we didn't have that happen. And I was expecting, you know, a lot of arguments on each side of the ledger and I think largely that that's what happen. It was very close. I do think as trial went on, I was a little surprised. Not by, you know, sort of the weakness of the FTC's case as a general matter with all its witnesses, but in an antitrust case, it's so important to have your antitrust economist expert on the money and just winning all these issues. And I was a little bit surprised that the FTC hadn't done certain analyses that it didn't have. You know, his economist, Scott Hemphil, didn't have answers to, I think, some important issues with his analysis. And also this revelation that came out of trial about his prior work potentially pitching this case with Tim Wu, who served in the Biden administration as a professor at Columbia Law, doing what medic called a roadshow, basically giving a PowerPoint presentation to a bunch of state and federal enforcers back in 2019, saying, you know, there's something here with Facebook's acquisitions that ought to be looked at as an antitrust case. And then when that case was announced, Scott Hemphill wasn't hired as the FTC's original expert. So he and Tim Wu wrote, you know, a blog post sort of the day after the case came out, praising it, saying that Meta was a monopolist, you know, kind of conclusively claiming that the acquisitions were anti competitive. So, you know, Meta was, was able to use that, I thought, successfully to kind of chip away at Scott Hemphill, the FTC's economist, his credibility make it look like he had preconceived outcomes and was kind of cherry picking evidence to support his theory. That doesn't usually happen in an antitrust case. And I think what, you know, if you dig a little deeper here. What's interesting is that it was reported that the FTC's original economist for this case, Carl Shapiro, who I've opposed in the FTC Qualcomm case where I represented Qualcomm, and he was the FTC's economist in that case, he left this case. The consulting firm that he was working with stayed on, and then they didn't hire Scott Hemphill until 2022, sort of after he had already made these statements. So I think if the FTC had their choice from day one, it wasn't Scott Hemphill, but they knew what he thought about the case at least. And, you know, unfortunate, I think for them that that played kind of a large role in trial ultimately.
- [21:03]
Alan Chappelle
Okay, I'm going to agree that that sounds odd and it sounds off and you could even, you can even say that it might sound a little shady on the behalf of the FTC because you kind of brought in this weird ringer who has a, who is predisposed to not like Meta. But let me ask you this. I can see that playing with a jury, does that really matter from the perspective of a judge who is sort of, you know, I mean, on some level the whole economist thing is, you know, you hire someone, you pay them a lot of money and they either say it tastes great or it's less filling. Right? I mean, like, is the judge really going to hold that with a lot of weight?
- [21:46]
Brendan Benedict
I don't think so. And you know, he's already rejected Meta's first attempt to sort of win outright on this ground. Right after trial ended, Meta moved, filed a motion to exclude Scott Hemphill's testimony altogether. The court kind of tersely in a one line order on the docket said, no, you know, I'll consider this as the part of the weight of the testimony, but not something where I'm going to exclude the witness altogether. So I wouldn't say, you know, it's a total nothing burger, but I think it's just, you know, one grain of salt that the court will take when it looks at, you know, the substance of the opinions. And I think it's the substance of the opinions where, like you pointed to earlier, the fact that there's not a price being charged to consumers really makes this a difficult case to win and a difficult one to testify about if you're an antitrust economist. And I think that's where the court's attention is going to be.
- [22:37]
Alan Chappelle
How much of this was a result of the FTC philosophically Deciding that you know what, we're not going to over rely on economists. We're moving away from the, you know, the, the Bork Reagan Chicago school era with that, that some might argue over relied on economists. And we're going to say, you know what, that's a part of the case, but it's not a core part of the case. Any water there?
- [23:02]
Brendan Benedict
Yeah, I think so. And I think, you know, a lot of this comes down to who, not just economists versus non economists, but sort of qualitative versus quantitative because it's still helpful to have an economist and the FTC did this explain the incentives that companies have at a high level. And you know, maybe you don't have numbers crunched to back that up, but there's general principles of economics that help you sort the evidence and weigh the evidence and understand, you know, the dynamics of what's happening. So I think that's the direction ultimately the FTC went in was this qualitative hypothetical monopolist test they might call it. Another way to think of it is these Brown Shoe indicia of market definition. Brown Shoe is a Supreme Court case that sort of sets out different fact based evidence that courts can look at to decide the relevant market or submarket. So that's where I think a lot of the FTC's argument is going to be. When we see their post trial briefing. It won't be based so much on some quantitative study, but it would be based on this qualitative evidence. At the same time though, I think it's challenging if you just leave it to a battle of the facts because Meta has some charismatic witnesses, you know, some might say self serving because they've got a lot of equity in a company so they don't want to see it broken up. And so that's maybe a tougher place to be where you're building your case through adverse witnesses. I do think what has made it easier for the FTC to take this approach in this case is they got a very favorable ruling at the summary judgment stage where the court, you know, pointed out the things that they would have to prove at trial. So you know, on anti competitive effects the court basically said you don't have to show harm to consumers, you don't have to show a higher price, you don't have to show lower output, you don't have to show worse quality. It's enough that there was an acquisition of a nascent competitor that could have been a threat in the future. That in and of itself is an anti competitive effect that makes the FTC's case, pretty easy. Then all they have to show at the first step, you know, they have to win market definition, but they have to show at step one that Meta thought and that WhatsApp and Instagram actually were nascent competitive threats. And if they do that, they've met their burden at step one, then it becomes Meta's burden to show, well, what are the pro competitive justifications? Were they really tied to the merger? You know, could Instagram and WhatsApp really not have succeeded and scaled without being acquired? So that sort of changes the game. It puts it, you know, meta on its back foot where now it has to meet a burden to show something to win the case. So I think the FTC is getting a lot of mileage out of that summary judgment opinion. And it doesn't have to show all that much to win at step one.
- [25:47]
Alan Chappelle
Okay, so there seemed to be a lot of focus on what would happen to Instagram and WhatsApp but for Facebook's acquisition. But how much discussion within the case took place asking maybe the opposite question, which is what would have happened to Meta but for having purchased certainly Instagram and probably WhatsApp, because at the time they were making that acquisition, Meta was losing. Well then Facebook was clearly losing the mobile space. The products that they had built out weren't really working. They didn't really have a viable path forward on mobile. So I mean, first of all, do you agree with that? But then secondly, assuming you do, how much of that came out?
- [26:32]
Brendan Benedict
Yeah, I do think that that was one of the FTC's themes at trial. I think it had second billing to the theme of what would happen to the acquired apps on the buffer world. But to take one example, we heard a little bit about the Facebook camera app that was Facebook's early version to try and duplicate in Instagram and make it easy to share photos. One thing that we heard about was just like you said, the photo sharing experience on Facebook wasn't optimized for mobile. It was a desktop based experience where you dump a whole bunch of photos into an album. You know, here's my summer of 2012. It's got 300 photos in it and people can see, you know, what you're doing. But Instagram, you know, really introduced this more curated content and made images look great with filters. Because back at the time, you know, we didn't have four cameras on the back of our phone with 130 megapixels, you know, photos didn't look that good. And the filters, you know, made it very easy for somebody, even with a low end phone to sort of have a beautiful, engaging photo and to have that be a curated experience where it's one at a time rather than a photo dump. So the camera app was, you know, Facebook's attempt to try and replicate that mobile experience. And you know, while it continued a little bit past the acquisition of Instagram, I think it's fair to say that it got shut down, it didn't get invested in, it wasn't being updated. The focus shift to Instagram. So you imagine the but for world, what could have been if Instagram wasn't part of Meta. Maybe Facebook, you know, doubles down on building this camera app and hires engineers away from Instagram and really tries to make that a solution on its own. And maybe that competition between the camera app and Instagram would have resulted in lower ad load for users, more interesting features and just different choices of different ways of sharing photos. So we'll never know. But that's definitely, I think, one piece of the story.
- [28:37]
Alan Chappelle
Well, okay, so just a quick aside. I remember growing up and we'd go to my grandmother's house and they lived in Milford, Connecticut in a very, very old neighborhood. I mean, I think their house was at least a couple hundred years old and they had all these pictures from, I don't know, the 1850s or so were like these little silhouettes of like these long lost relatives of mine. And I'm sorry, smiling because it's like with all that technology, that was the thing that Instagram was able to do was to reinvent the stuff, you know, 1850 era technology in some level to do that to your photos. I don't really have a question there. It's just a general observation.
- [29:13]
Brendan Benedict
Right, except then you had to sit still for five minutes or something, right. For the photo to finish, thinking, oh.
- [29:18]
Alan Chappelle
That was a day. Yeah, no, you, you took the, you took the family there for a day and probably like, you know, a month's salary or something like that for, for most people. So yeah, how far we've come. So I want to dumb this down a little bit and just, just try to make the argument for either side. So, you know, my first thought is, why isn't this a slam dunk for the ftc? So we literally have emails from Zuck saying this is my paraphrase, but they're saying that they're getting hammered trying to compete in mobile and that their best bet would be to buy Instagram so they can remove them as a competitor. I mean, there are emails that essentially Said that. Why hasn't the FTC prevailed already?
- [29:59]
Brendan Benedict
Yeah, well, actually that email in particular, Zuckerberg comes in a later email in the chain, maybe some lawyer at the company's talk to him and then he says, hey, I didn't mean what I just said about eliminating a potential competitor. I would never say that. We just want to make them so great. So that was pretty funny to see. But yeah, I think the question is then and now. And in a typical merger challenge, it's forward looking, it's under the Clayton act and it's an easier standard, a more forgiving standard for plaintiffs to meet in two ways. You know, sort of the first thing is you're just, you're just making your best guess likely any competitive effects. And then on the defense side on pro competitive justifications or benefits, you know, they haven't been realized yet. It's a really hard bar to win merger efficiencies or synergies as a defense to a merger challenge under the antitrust laws. But this, you know, now we have the benefit of 13 years of hindsight from the Instagram acquisition. So the evidentiary record has, has changed and it's changed, you know, in the ways we were talking about, about short form video consumption and now suddenly Maybe, you know, TikTok is a competitor where in, you know, 2012, TikTok didn't even exist. So that's, you know, a new issue that the FTC has to deal with. This evidence of, you know, the integration. The word they used at Meta was the instagration. The instigation was migrating Instagram to Facebook servers and infrastructure. That wouldn't happen yet. So it would all be speculative if this case was, you know, brought at the time the merger was being contemplated and was forward looking. So I don't think it's a slam dunk for the FTC today just because the ground beneath our feet has, has shifted. And you know, because I think it's a higher bar under the Sherman act to show any competitive effects than it is under the Clayton act to stop a merger. On the same way it's a lower bar for the defense to show pro competitive justifications under a monopolization claim that it is when they're trying to justify the merger in real time.
- [32:11]
Alan Chappelle
So that makes sense to me and you've sort of argued this, but I'm going to ask anyway because I think I can make the counter argument. Why isn't this a slam dunk for Meta? Because the marketplace has really changed pretty significantly over the last several years and Then on top of that, antitrust regulators effectively approved a lot of the merger activity that took place. So the FTC's case seems to be FTC shares evidence of Zuck and others emails as they were deliberating whether to purchase Instagram and WhatsApp. But even if you buy into the notion that Facebook cornered the market on personal social networking, circa know, 2012-2016 or 17 or whatever, the current era really began with Instagram stories. So we've been in this new era for several years and personal social networking is sort of morphed into a smaller part of Meta's pie. And then on top of that, as you just said, there's others like, you know, TikTok and even YouTube who are, who are competing. So in other words, you know, hasn't the FTC missed its moment here, both on the front end by a approving the merger and then on the back end by waiting too long?
- [33:16]
Brendan Benedict
You know, I think in the FTC's favor is the, you know, so called insidification of Meta's apps, where if you think there's a lot more competition today, why do the apps keep getting worse, they should be getting better. And the ad load is increasing. The more competitors Meta says that it has, the more ads it's able to serve to users and the more time you have to spend looking at the content that you actually want to see. That's the opposite of how we think competition works. And so whatever competition is happening, and I don't doubt that there is competition at some level, at a more broader, more general level for time and attention, for advertiser dollars between Meta and TikTok and YouTube, even if there's competition there. The point is that it's not sufficient competition to discipline Meta's behavior in that core use case of friends and family sharing. And we saw this, I think in a lot of different ways, not just the ad load, but also if you think about things like child safety, which is another big set of litigations that Meta is facing right now. And some of this came out in trial where Meta was doing a pretty late analysis, I believe around 2018, where it ran some aggressive tests. But then those tests revealed problems on the platform and there were shocking numbers, I thought, where there's an Instagram deck analyzing this, which originally started with I think two dummy accounts. But it came to the conclusion that the Instagram algorithm is actually introducing minors, children to account holders that the app identifies as engaging in grooming behaviors, potentially, you know, child predators. It's pretty late to, you Know, six years after the acquisition, you're first starting to look at that problem and identify it, you probably are not able to get away with that. If you're really competing with other tech platforms that take that seriously and invest a lot. And if you can just say, you know, there's a number, there's, there's hundreds of thousands or billions of children that we could put in harm's way without having to change our behavior, that looks pretty good, like you're a monopolist, that you're. Whatever competition is happening, it's now forcing you to change your behavior in a way that for most businesses would be pretty fatal. So I don't know that there's any level of acceptable exposure like that of miners to problematic users on the platform, but certainly it seemed to be at such a level that nothing that was happening in the market was really improving this behavior. And you look at that, you look at ad load and things like that, I think those are all points in the FTC's favor that this broader competition, it's not competition for the friends and family sharing use case, it's not competition for personal social networking because it's not changing Meta's behavior.
- [36:01]
Alan Chappelle
So I've often wondered if Meta ends up winning this battle with the ftc, but ultimately losing the war because of evidence coming out in this case. I mean, at some point, you know, there's blood in the water. I mean, if you, if you've taken the time to create a segment that you've identified as groomers, sooner or later somebody is going to want to understand at what date you started creating that segment. And then once you've identified that as a segment of your users, what have you done to combat that so as to protect children? I mean, did any of that come out?
- [36:38]
Brendan Benedict
It did, yeah. I thought that was one of the big surprises of Trial was, was this analysis on that issue, at least from Instagram. And it's important to say too, you know, there's a lot we don't know about it. We didn't get all the answers about it. Meta did not return to that topic at trial to try and clean it up, so to speak, or put a different spin on it. And some of the slides and the key information was redacted. So. But I think that in and of itself, you know, leaves a lot of questions like the ones you just raised where antitrust cases are, bet the company cases in so many ways. And because you're looking at, you know, not just the whole life cycle of a particular product, but of these companies and of the whole industry. You know, it can go anywhere and all kinds of stuff can come out that you didn't think were going to come out. And so, you know, this relationship between Zuckerberg and Systrom not being the greatest was definitely something that came out in testimony of both men. This issue about child groomers being a persistent problem on the apps, all of this is, you know, a little tangential, you might think, to the core, core antitrust issues. But there's societal issues that now, thankfully, the public has a little more information about, because we had an open trial where people could see that evidence. So, you know, I think another thing that, that this trial is highlighting is it's forcing Meta to finally change its behavior. Some of it, I think, is just for litigation purposes, like rolling out the Friends tab two weeks before trial starts, but it's also making other changes. One thing that was so funny was the FTC has been arguing all trial long that WhatsApp would have been fine on its own because it would have just started monetizing with ads. And, you know, I thought that was one point where Meta was ahead. I mean, it had One of the WhatsApp co founders, Brian Acton, testify who said, we were never going to roll out ads. Sequoia said they were never going to do it. Meta said they were never going to do it. So everybody on the trial record seemed to agree. WhatsApp is not rolling out ads. What happens three weeks after trial ends? WhatsApp is now rolling out ads on the platform. So, you know, there's a lot of this that's, that's, you know, both. The trial, I think, reveals stuff that you wouldn't otherwise know about, but it's also, you know, a different form of truth. It's litigation truth. And there's stuff now happening in reaction to the trial that's outside the trial record, but I think is definitely being influenced by it. And I think the last takeaway on this is, you know, the stuff that just having this trial will change going forward, even if the FTC loses. You know, I think, for instance, this trial makes it impossible for meta to buy TikTok, because it just spent all trials saying how much it competes with TikTok, which would be a pretty strong case if it then comes along, tries to acquire TikTok, and the FTC would be able to stop that. I think that's something that Meta probably looked at, and I think it's been reported that Meta has been lobbying kind of strongly for this TikTok ban. But it's a much different world now after this trial where that option to really acquire TikTok, I think is off the table now. So yeah, there's a lot of collateral stuff that comes out of the trial that won't be determinative maybe in the outcome of this case, but certainly matter a lot for the public and Meta as a company.
- [39:52]
Alan Chappelle
I don't know, Brendan, I wouldn't put it past him to make a bid. And this isn't even a commentary on Meta, it's probably a commentary on everybody. There's all kinds of deals being made. And look, you know, we've already decided that TikTok is a horrible, horrible national security threat, but not so much that we can't kick the can on it three times. Yeah. So I, I, this has been a fantastic conversation. But before I let you go, do you have a prediction regarding how this is going to play play out, who's going to win this and what's your percentage confidence level?
- [40:24]
Brendan Benedict
Well, I'll take the low hanging fruit first. I think the FTC is going to lose the WhatsApp story for the reasons that I was talking about. I think the evidence was pretty consistent from all different perspectives and witnesses that WhatsApp was never had designs to branch out into personal social networking and take Facebook on in that way. And I think there's not a whole lot of evidence that, you know, WhatsApp would be successful on its own if it didn't change its monetization strategy. And there's a lot of evidence that it wasn't going to do that. So WhatsApp, I think is a tougher case for the FTC. And I think, you know, they just didn't carry their burden to show why that was really a nascent or actual competitor to Facebook. So even as we said, you know, from the summary judgment ruling, they just have to show that these are nascent competitors. Don't think they did that with WhatsApp. So I think we can safely say that, you know, Meta will probably not have to divest WhatsApp. I think the FTC is a fighting chance on Instagram. I think a lot of it is just in the weeds on these issues that we talked about. The first is on market definition. You know, I think if there's any competitor that's going to be in that market that changes the market share calculation, it's TikTok, I think, to a lesser degree, YouTube. But that's not fatal to the FTC's case because it doesn't take Meta's market share down low enough to the point where you can conclusively say it's not a monopolist. So let's say that the FTC wins market definition. I think where it has the toughest job is to show that anti competitive effects outweigh the pro competitive justifications. There was one point at trial where we were delving to the nitty gritty of, you know, should Instagram be hosted on AWS servers or was it better to do the instigation and be on Facebook servers? And you know, Judge Boasberg at one point kind of threw his hands up and said, yeah, look, this line of questioning doesn't matter. They had some issues on aws, they had different issues on Facebook, it's all kind of a wash. Does that mean, you know, that Instagram wouldn't succeed in the bud? Poor world? Does it mean that Instagram didn't grow more quickly than it otherwise would have? So I think that's where sneakily, I don't think market definition is going to be as positive. I think it's really going to come down to did Meta meet its burden to show that there were pro competitive justifications and then did the FTC do a good enough job showing that the anti competitive harms outweigh that? I think it showed that ad load has increased over time, but I think Meta's economist was persuasive in saying that's just one dimension of quality. You know, why should ad load count more than reducing spam or introducing new features or helping Instagram grow? And at the point where the FTC's economist can't say that Instagram would have grown the same or more quickly if it hadn't been acquired, it's a really tough spot for the FTC to be in. So I still think, you know, they have a fighting chance. A lot of these issues are very close and there's something on each side of the ledger, but I don't think that they carry the burden with WhatsApp. So I would, you know, stay tuned and see how the judge resolves the Instagram case.
- [43:32]
Alan Chappelle
All right, well, we'll keep our eye on that. I mean, from the perspective of the ads community, the Instagram case is probably more interesting and more important because if that gets broken up, I don't know that anybody who's really looking at this case from a Meta, forgive the pun, standpoint, really has their head around the implications of having to split those two companies up. And so that's going to be really interesting to watch.
- [43:55]
Brendan Benedict
I have one random comment that you didn't ask me about to add in that might be interesting on that one thing that's a what if is did the FTC focus on the wrong side of the market? Because it's all focused on this consumer side where there is no price. And so you're talking about the number of ad impressions that users see. And it's difficult to quantify that it's a harm to quality in light of everything else. But there's some evidence out there that the price of ads has really gone up after Instagram was acquired by Facebook and they became one platform with sort of joint negotiating power. And so I wonder if there's a different case out there that's just on the advertiser side that looks at the increased costs of just buying ad placement on Facebook and Instagram. On the Odd Lots podcast, I think it was M.M. lafleur said that, you know, it had gone up like hundreds of percents in cost in the last 12 years. And so I wonder if maybe the FTC is licking its shops a little bit that it should have just focused on the price of ads and it would have a much more straightforward case because you could show a price increase there. But it made the choices it did and so I guess we'll have to see what happens in that world.
- [45:02]
Alan Chappelle
So I want to gently push back on that. And I would use the doj had a hard time in the Google Ad tech case demonstrating anti competitive impact on the ad side. And the reason for that is, is like at the end of the day, an advertiser thinks that a 10 cent per thousand makes sense for them, then they're going to spend $0.10 per thousand. If the price then goes up to $10 per thousand, the advertiser will decide or not whether or not that ad impression has enough value for them. And so it's really hard to say in a vacuum that like, yeah, the price went up but the advertisers kept spending. Did they keep spending because that was the only option available to them. And then you got a real relevant market problem because there are other options for them on the ad side. And I think that, I just think that might have been a more difficult case to bring.
- [45:54]
Brendan Benedict
Yeah, I think it's got unique problems of its own for sure. I think one thing that makes it easier though is at least you have a price and so you can see where the line goes up or down. And so a lot of the cases, you know, kind of turn on that. I would say, you know, in the language of antitrust economics, you could think of Meta as a monopolist over its users and having, you know, there's some particular users that you can only reach by advertising on Meta's platforms. You're not going to reach them placing an ad in the Wall Street Journal or getting an ad on a certain podcast on Spotify. Right. So in a certain sense, you know, we think of multi homing. There's, there's many options for advertisers to place their ads, but in some respects those platforms have a monopoly over the user base that's specific to them and that's what allows them to charge you, I think, ever increasing prices because there's no other way to get to those eyeballs. So it's a different case. I definitely think it would be complicated to go through all the Google Ad tech stack kind of stuff in the exchanges and I wonder how that would go in the Meta world. But food for thought about what could have been and a different theory of looking at this.
- [47:04]
Alan Chappelle
Well, we may find that out in Texas in a few months. We'll see.
- [47:09]
Brendan Benedict
That's right.
- [47:10]
Alan Chappelle
Brendan, thank you so much for coming on. This has been a great conversation. I really appreciate it.
- [47:14]
Brendan Benedict
Thanks for having me.
- [47:17]
Alan Chappelle
That was a great conversation. Brendan has a fantastic sense of the arguments being made by both sides here. I have a few observations. First, Brendan believes that there's a decent chance that the FTC prevails here and that Meta will be forced to divest Instagram. I don't think anyone in the ad space is really thinking about the implications of an Instagram divestiture. Second, Brendan supports the view that even if Meta prevails in this case, the evidence uncovered here may raise a whole bunch of issues for Meta downstream. I recognize that this may take years to play out, but I maintain that the digital media and ads community are likely sleeping on this case, which is odd because the possible implications may rival those in the DOJ cases against Google. We've got a bunch of fantastic guests coming up on the Monopoly Report podcast over the next few weeks. I would love it if you took a moment to subscribe or even provide a review of the show at www.monopolyreportpod.com or on Spotify, Apple, YouTube, or wherever you listen to your podcasts. Thank you so much for listening.
- [48:23]
Unknown
Thank you for listening to the Market Podcast. New episodes come out every Friday and an insightful vendor interview is published each Monday. You can subscribe to our library of hundreds of executive interviews at marketecture tv. You can also sign up for free for our weekly newsletter with my original strategic insights on the week's news at News Marketure tv. And if you're feeling social, we operate a vibrant Slack community that you can apply to join at adtechgod.
- [48:50]
Brendan Benedict
Com.