Facebook Chairman and CEO Mark Zuckerberg testifies at a House Financial Services Committee hearing in Washington, October 23, 2019.
Erin Scott | Reuters
Facebook CEO Mark Zuckerberg gave a full-throated defense of his company’s ownership of Instagram on Wednesday, describing the hefty competition that the combined company faces in the market.
Speaking on a call with analysts following Facebook’s third-quarter earnings report, Zuckerberg was asked how the increased regulatory scrutiny the company faces will affect its ability to roll out new services in new markets.
Zuckerberg immediately focused his answer on Instagram, the photo-sharing app that Facebook purchased in 2012 for $1 billion and that now has more than 1 billion monthly active users.
“A lot of the antitrust questions that are out there that are going to be about our acquisition of Instagram, right?” Zuckerberg said. “There’s going to be a lot of scrutiny of that acquisition in particular.”
Democratic presidential candidate Sen. Elizabeth Warren has called for the breakup of Facebook, specifically the divesting of Instagram, a sentiment shared by Facebook co-founder Chris Hughes, who published a New York Times op-ed claiming the deal should be “unwound.” Additionally, Facebook is facing investigations and probes from the Federal Trade Commission, the Department of Justice and 47 attorneys general related to antitrust issues.
Zuckerberg began his latest defense by highlighting the competitive environment Facebook was in before the deal took place. At the time, Instagram only had 13 employees supporting the app’s 30 million users.
“In some ways we considered Instagram to be a competitor, but we have always thought that the better way to think about Instagram was that it was complementary to Facebook and what we’re doing,” Zuckerberg told analysts.
He’s trying to make the point that whatever market strength Instagram now has is the result of the work that’s taken place since Facebook acquired it.
Adam Mosseri (center), is taking over leadership of Facebook’s instagram from co-founders Mike Krieger (left) and Kevin Systrom (right).
“Instagram wouldn’t be what it is today without [co-founders Kevin Systrom and Mike Krieger],” Zuckerberg said. “But it also wouldn’t be what it is without everything that we put into it, whether that’s the infrastructure or our advertising model, our expanded safety services and a lot more.”
There’s no questioning the value that Instagram has brought to Facebook, allowing it lure a younger demographic and giving it a product that was entirely built for smartphones.
In Facebook’s updated IPO prospectus, published just after the acquisition, it said Instagram would help “to enhance our photos product offerings and to enable users to increase their levels of mobile engagement and photo sharing.” Facebook was hardly generating any revenue from mobile ads, a risk so severe that it weighed on the stock for many months after the IPO. As of the latest quarter, ads account for 94% of Facebook’s total revenue and Instagram is a significant part of that.
For now, regulatory pressure isn’t hurting Facebook’s financial performance. The company posted quarterly earnings, revenue and average revenue per user that beat analysts’ estimates, sending the stock up more than 4% after the bell.
Still, Zuckerberg said that Facebook continues to face competition from a variety of sources.
“We have different competitors in the space today like Snapchat, which shows that people are always building new ideas,” he said. “On mobile phones, of course, remember that both Apple and Google have built cameras and private photo sharing and photo management directly into their operating system.”