Meta has a lot at stake in the current FTC lawsuit against it. In theory a negative verdict could result in a company breakup. But CEO Mark Zuckerberg once faced an even bigger existential threat. Back in 2006, his investors and even his employees were pressuring him to sell his two-year-old startup for a quick payoff. Facebook was still a college-based social network, and several companies were interested in buying it. The most serious offer came from Yahoo, which offered a stunning $1 billion. Zuckerberg, though, believed he could grow the company into something worth much more. The pressure was tremendous, and at one point he blinked, agreeing in principle to sell. But immediately after that, a dip in Yahoo stock led its leader at the time, Terry Semel, to ask for a price adjustment. Zuckerberg seized the opportunity to shut down negotiations; Facebook would remain in his hands.
“That was by far the most stressful time in my life,” Zuckerberg told me years later. So it’s ironic to observe, through the testimony of this trial, how he treated two other sets of founders in very similar situations to him—but whom he successfully bought out.
The nub of the current FTC trial seems to hinge on how US District Court judge James Boasberg will define Meta’s market—whether it’s limited to social media or, as Meta is arguing, the broader field of “entertainment.” But much of the early testimony exhumed the details of Zuckerberg’s successful pursuit of Instagram and WhatsApp—two companies that, according to the government, are now part of Meta’s illegal monopolistic grip on social media. (The trial also invoked the case of Snap, which resisted Zuckerberg’s $6 billion offer and had to deal with Facebook copying its products.) Legalities aside, the way these companies were upended by a Zuckerberg offer made the first few days of this case a dramatic and instructive study of acquisition dynamics between small and big business.
Though almost all of these narratives have been covered at length over the years—I documented them pretty thoroughly in my own 2020 account Facebook: The Inside Story—it was striking to see the principals testifying under oath about what happened. Hey, my sources were pretty good, but I didn’t get to swear them in!
In their testimony, star witnesses Zuckerberg and Instagram cofounder Kevin Systrom agreed on facts, but their interpretations were Mars and Venus. In 2012, Instagram was about to close a $500 million investment round, when suddenly the tiny company found itself in play, with Facebook in hot pursuit. In an email at the time, Facebook’s CFO asked Zuckerberg if his goal was to “neutralize a potential competitor.” The answer was affirmative. That was not the way he pitched it to Systrom and cofounder Mike Krieger. Zuckerberg promised the cofounders they would control Instagram and could grow it their way. They would have the best of both worlds—independence and Facebook’s huge resources. Oh, and Facebook’s $1 billion offer was double the valuation of the company in the funding round it was about to close.
Everything worked great for a few years, but then Zuckerberg began denying resources to Instagram, which its cofounders had built into a juggernaut. Systrom testified that Zuckerberg seemed envious of Instagram’s success and cultural currency, saying that his boss “believed we were hurting Facebook’s growth.” Zuckerberg’s snubs ultimately drove Instagram’s founders to leave in 2018. By that time, Instagram was arguably worth perhaps 100 times Zuckerberg’s purchase price. Systrom and Krieger’s spoils, though considerable, did not reflect the fantastic value they had built for Facebook.