WEBVTT - All Broken Up About Facebook 0:00:04.240 --> 0:00:07.240 Welcome to tex Stuff, a production of I Heart Radios, 0:00:07.320 --> 0:00:13.880 How Stuff Works. Hey there, and welcome to tech Stuff. 0:00:13.920 --> 0:00:17.239 I'm your host, Jonathan Strickland. I'm an executive producer with 0:00:17.360 --> 0:00:19.919 How Stuff Works and I heart radio and I love 0:00:20.239 --> 0:00:24.560 all things tech. Kind of boy. I keep on having 0:00:24.560 --> 0:00:30.160 to justify that. But as I record this episode, Facebook 0:00:30.280 --> 0:00:34.519 continues to be under intense scrutiny. As a quick overview 0:00:34.520 --> 0:00:38.160 of why that is, we look at scandals ranging from 0:00:38.280 --> 0:00:42.720 data breaches, interference from various parties to affect stuff like 0:00:42.880 --> 0:00:47.200 political elections using Facebook as a platform, and the company's 0:00:47.280 --> 0:00:51.599 own history of questionable policies, including one that allowed Facebook 0:00:51.600 --> 0:00:54.760 employees to essentially look at anything they wanted to among 0:00:54.920 --> 0:00:59.920 users because there were thousands of passwords saved in plaint text, 0:01:00.520 --> 0:01:03.400 which is not good. But there are also talks about 0:01:03.400 --> 0:01:06.679 the company perhaps being too powerful in general as it 0:01:06.720 --> 0:01:13.160 consolidates massive individual services like WhatsApp, Instagram, and Facebook itself 0:01:13.440 --> 0:01:17.840 into a more unified, dominant platform. That's brought about conversations 0:01:18.160 --> 0:01:22.280 toying with the idea of breaking Facebook up into smaller companies, 0:01:22.480 --> 0:01:25.959 conversations that have been happening for a while now. Today 0:01:26.000 --> 0:01:29.560 I want to talk about that particular tactic, how Facebook 0:01:29.640 --> 0:01:32.920 got there and what might happen next? And since I 0:01:32.959 --> 0:01:36.200 record these shows in advance of their publication, by the 0:01:36.240 --> 0:01:39.520 time you hear this, more may have developed in that story. 0:01:39.840 --> 0:01:43.240 So let's start off with the concept of monopolies and 0:01:43.280 --> 0:01:46.920 the government's power to break them up. The definition of 0:01:46.959 --> 0:01:52.040 a monopoly is a situation where one producer or group 0:01:52.120 --> 0:01:56.400 of producers acting together controls the market supply of a 0:01:56.440 --> 0:02:00.720 good or service. So, for example, if you were the 0:02:00.800 --> 0:02:05.000 only person in the world who could provide internet broadband 0:02:05.040 --> 0:02:08.200 service to customers, you would be in control of a monopoly. 0:02:08.680 --> 0:02:11.840 And in a monopoly, there is no competition in the 0:02:11.880 --> 0:02:14.840 market for that good or service, and that means you 0:02:15.040 --> 0:02:17.440 could set all the rules. You could set the price 0:02:17.880 --> 0:02:21.480 and demand people meet that price. There'll be no other 0:02:21.520 --> 0:02:23.760 market pressures for you to do Otherwise. You could also 0:02:24.000 --> 0:02:27.919 restrict the output on purpose to increase the demand. You 0:02:27.960 --> 0:02:30.280 would have very little reason to worry about your customers 0:02:30.320 --> 0:02:33.000 at all, because your customers would literally have no one 0:02:33.040 --> 0:02:36.320 else to turn to if they were dissatisfied. They either 0:02:36.760 --> 0:02:40.359 deal with you or they go without. And as I mentioned, 0:02:40.639 --> 0:02:43.919 a monopoly can actually consist of more than one entity. 0:02:44.000 --> 0:02:47.799 If the collected entities are all working together, you could 0:02:47.840 --> 0:02:50.839 have what amounts to a cabal of companies that are 0:02:50.880 --> 0:02:53.760 all agreeing on things like how much they will charge 0:02:53.760 --> 0:02:57.079 for their products or services, where they will operate within 0:02:57.120 --> 0:02:59.600 a region, and how much are their supply they will 0:02:59.600 --> 0:03:01.880 put on the market. That would allow the group to 0:03:01.919 --> 0:03:06.040 continue to dictate price and supply. You can also have 0:03:06.360 --> 0:03:10.679 similar situations in which only a couple of companies dominate 0:03:10.720 --> 0:03:13.800 the market, but aren't working directly with one another to 0:03:13.840 --> 0:03:18.040 control everything all the time. They may actually compete against 0:03:18.080 --> 0:03:22.519 each other in limited fashion, but again, this is a 0:03:22.639 --> 0:03:26.960 limited competition as there are only two companies dominating the industry. 0:03:27.480 --> 0:03:30.840 This is what we call a duopoly for consumers. A 0:03:30.960 --> 0:03:35.000 duopoly could be slightly better than a monopoly, but it's 0:03:35.120 --> 0:03:40.120 rarely much better. From there, you can go to an oligopoly. Technically, 0:03:40.200 --> 0:03:43.920 a duopoly is the smallest type of oligopoly. This is 0:03:43.960 --> 0:03:48.280 any situation which a small number of large entities dominate 0:03:48.320 --> 0:03:52.040 a particular market. In the United States, you could argue 0:03:52.280 --> 0:03:56.120 that internet service providers have or at least at certain times, 0:03:56.120 --> 0:04:02.320 have behaved as an oligopoly. Ideally, for consumers, every given 0:04:02.480 --> 0:04:07.640 market will have many companies in it, all competing for business. 0:04:07.640 --> 0:04:10.880 This helps ensure that an individual consumer can seek out 0:04:10.880 --> 0:04:15.080 a solution that best meets their needs and means. As 0:04:15.080 --> 0:04:18.200 a consumer, you can look at all the offerings available 0:04:18.200 --> 0:04:21.240 in your area and way different factors such as the 0:04:21.320 --> 0:04:24.880 quality of the goods and services, the cost you'll have 0:04:25.000 --> 0:04:27.800 to meet, how easy it is to get hold of them, 0:04:28.000 --> 0:04:31.880 the various reputations of the different competing companies, and so on. 0:04:32.400 --> 0:04:35.520 But with a douopoly, your options are limited to two. 0:04:36.000 --> 0:04:40.320 With a monopoly, you have no options at all. Generally speaking, 0:04:40.920 --> 0:04:46.080 governments tend to protect the public against monopolies. However, there 0:04:46.080 --> 0:04:49.680 are times when a government might actually create a monopoly 0:04:49.920 --> 0:04:52.440 for the purposes of scaling the business up to meet 0:04:52.640 --> 0:04:56.640 population demands, such as with utilities. Power utilities in the 0:04:56.720 --> 0:05:01.400 United States are dominated by near monopolies certain markets. The 0:05:01.440 --> 0:05:04.719 reason for that is largely because it is an incredibly 0:05:04.839 --> 0:05:08.480 expensive and difficult thing to build out and maintain a 0:05:08.520 --> 0:05:13.359 power utility, and supplying electricity is an incredibly important task. 0:05:13.839 --> 0:05:18.400 These companies typically face state level regulations to make sure 0:05:18.720 --> 0:05:23.560 they aren't gouging customers with unreasonable price hikes, or they 0:05:23.640 --> 0:05:27.120 might do so for the purposes of national security, such 0:05:27.160 --> 0:05:29.680 as when the United States Navy attempted to create a 0:05:29.680 --> 0:05:34.159 monopoly in radio broadcasting during World War One. The Navy 0:05:34.240 --> 0:05:36.720 was told that they weren't supposed to do that. By 0:05:36.720 --> 0:05:40.239 the way, that effort ultimately fell short, and the Navy 0:05:40.279 --> 0:05:43.720 had to hand over the assets to civilian companies. General 0:05:43.760 --> 0:05:46.960 Electric would form the Radio Corporation of America for that 0:05:47.120 --> 0:05:50.560 very purpose, And while our c A wasn't a total monopoly, 0:05:50.880 --> 0:05:53.800 it was the dominant corporation in the early days of 0:05:53.920 --> 0:05:58.640 radio broadcasting post World War One. So there have been 0:05:58.680 --> 0:06:02.479 instances in which a monopoly was seen as useful or 0:06:02.480 --> 0:06:06.839 even necessary to achieve certain ends, but in general the 0:06:06.920 --> 0:06:10.120 US government is wary of them. The state of affairs 0:06:10.320 --> 0:06:14.480 began in the late eighteen hundreds as the Industrial Revolution 0:06:14.600 --> 0:06:19.120 was changing commerce dramatically. You might remember from my episodes 0:06:19.200 --> 0:06:22.800 on the Industrial Revolution how things like steam engines and 0:06:22.920 --> 0:06:28.240 railroad systems were transforming the world. They were also transforming business. 0:06:28.920 --> 0:06:33.679 Successful endeavors would buy up smaller enterprises to increase their reach. 0:06:34.240 --> 0:06:37.520 This led to a situation where fewer and fewer companies 0:06:37.680 --> 0:06:40.919 were holding more and more of the market. A U 0:06:41.000 --> 0:06:44.760 S Senator named John Sherman foresaw how this could develop 0:06:44.800 --> 0:06:48.200 into a real problem, and then famously compared the situation 0:06:48.279 --> 0:06:51.039 to that of a monarchy. He said that the citizens 0:06:51.040 --> 0:06:54.080 of the United States had already decided that they didn't 0:06:54.120 --> 0:06:57.600 want a king to rule over them politically, and so 0:06:57.680 --> 0:07:00.279 they should be just as resistant to a king like 0:07:00.560 --> 0:07:05.560 company ruling over some necessary market. Sherman's name would attached 0:07:05.640 --> 0:07:09.479 to an important piece of legislation in eighteen ninety, the 0:07:09.640 --> 0:07:14.120 Sherman Antitrust Act, which established laws that made it illegal 0:07:14.240 --> 0:07:18.160 for anyone to try and form a monopoly or to 0:07:18.280 --> 0:07:21.920 restrict trade in any given market. Should the U. S. 0:07:21.960 --> 0:07:26.040 Government suspect any company of doing so, the Justice Department 0:07:26.120 --> 0:07:29.239 has the authority to take that company to federal court, 0:07:29.680 --> 0:07:33.000 and from there the government can do many things, such 0:07:33.040 --> 0:07:36.440 as create regulations that the company must abide by, or 0:07:36.480 --> 0:07:39.200 even order the company to be broken up into smaller 0:07:39.320 --> 0:07:44.720 entities that presumably would compete against one another. The Sherman 0:07:44.760 --> 0:07:48.760 Antitrust Act was just the first federal legislation about how 0:07:48.800 --> 0:07:53.040 to deal with monopolies and anti competitive practices. Other laws 0:07:53.080 --> 0:07:56.160 such as the Clayton Act, the Federal Trade Commission Act, 0:07:56.200 --> 0:07:58.680 and a couple of others would round out the policy. 0:07:59.200 --> 0:08:02.440 A trust, by the way, in this sense, is essentially 0:08:02.720 --> 0:08:06.000 a business that is operating as an effective monopoly, or 0:08:06.080 --> 0:08:08.560 one that might be a true monopoly. There have been 0:08:08.600 --> 0:08:12.680 some pretty famous antitrust lawsuits in the United States that 0:08:12.840 --> 0:08:16.240 led to the breakup of big companies. One of those 0:08:16.440 --> 0:08:19.920 was John D. Rockefeller's Standard Oil Company in the early 0:08:20.000 --> 0:08:23.680 nineteen hundreds. While there were numerous oil companies in the 0:08:23.760 --> 0:08:27.200 US at the time, Rockefeller used his leverage to broker 0:08:27.320 --> 0:08:32.800 favorable deals that discouraged competition wherever Standard Oil was in operation. 0:08:33.360 --> 0:08:36.679 The US government swooped in and took Standard Oil to court, 0:08:37.080 --> 0:08:40.840 ultimately breaking the company up into more than thirty smaller 0:08:40.880 --> 0:08:44.400 oil companies, many of which would merge with one another 0:08:44.480 --> 0:08:51.400 and grow to become ginormous conglomerates. So today those include Chevron, Exxon, 0:08:52.000 --> 0:08:55.560 then Mobile, when eventually those two would merge back together 0:08:55.720 --> 0:09:00.000 to become ex On, Mobile and Emico. Much more recently 0:09:00.400 --> 0:09:03.360 was the antitrust case against A T and T in 0:09:03.400 --> 0:09:07.120 the nineteen seventies and early nineteen eighties. The details of 0:09:07.160 --> 0:09:10.520 the case are complicated, and maybe I should do a 0:09:10.600 --> 0:09:13.920 full episode about what happened in that case. In the future. 0:09:14.360 --> 0:09:16.280 But at the heart of the matter was that the 0:09:16.360 --> 0:09:19.640 US government believed A. T and T had been using 0:09:19.640 --> 0:09:24.400 its powerful market position to suppress competition. The government's goal 0:09:24.880 --> 0:09:27.640 was to break A. T and T up. The company 0:09:27.679 --> 0:09:32.360 had several operating companies called Regional Bell Operating Companies or 0:09:32.640 --> 0:09:35.400 r B o c s that the government wanted to 0:09:35.440 --> 0:09:38.480 see split off from A. T and T. The government 0:09:38.559 --> 0:09:41.320 also wanted A. T and T to divest itself of 0:09:41.360 --> 0:09:46.640 its manufacturing subsidiary of Western Electric. The reason they are 0:09:46.760 --> 0:09:50.839 called Bell operating companies is that they and A T 0:09:50.960 --> 0:09:55.000 and T itself traced their history back to Alexander Graham Bell, 0:09:55.360 --> 0:09:58.640 inventor of the telephone. They all grew out of the 0:09:58.800 --> 0:10:03.160 Bell Telephone comp Any, which evolved into the American Telephone 0:10:03.200 --> 0:10:06.480 and Telegraph Company, or A T and T. This wasn't 0:10:06.520 --> 0:10:10.240 the first time the government had concerns about the company. 0:10:10.400 --> 0:10:14.160 Back in nineteen forty nine, the Justice Department had filed 0:10:14.240 --> 0:10:17.560 a suit against A. T and T, stating the company 0:10:17.600 --> 0:10:20.720 was violating the Sherman Anti Trust Act and that it 0:10:20.760 --> 0:10:24.679 should spin off Western Electric. That lawsuit would eventually end 0:10:24.720 --> 0:10:27.360 in a consent decree signed by A. T and T. 0:10:27.520 --> 0:10:31.120 Executives in nineteen fifty six. Then the company held on 0:10:31.240 --> 0:10:35.760 to a Western Electric. Ultimately, A T and T settled 0:10:35.800 --> 0:10:39.080 its case out of court, agreeing to divest itself of 0:10:39.160 --> 0:10:43.800 the Bell operating companies creating these seven so called baby Bells. 0:10:44.440 --> 0:10:47.760 Since then, most of those companies have merged with one another, 0:10:48.080 --> 0:10:50.840 with four of them back under the corporate umbrella of A. 0:10:50.920 --> 0:10:55.440 T and T. So there you go. When we come back. 0:10:55.800 --> 0:10:58.160 I have one other antitrust case I think it is 0:10:58.200 --> 0:11:01.400 important to discuss before getting back to Facebook. But first 0:11:01.840 --> 0:11:12.920 let's take a quick break. So in an episode about 0:11:13.000 --> 0:11:17.760 antitrust cases and technology, I'd be remiss not to talk 0:11:17.840 --> 0:11:21.320 about Microsoft. This case took place in the late nineties, 0:11:21.480 --> 0:11:24.520 nineties and early two thousand's, and at the heart of 0:11:24.559 --> 0:11:27.560 it was the allegation that Microsoft was using its power 0:11:27.640 --> 0:11:32.559 as the world's largest software company to pressure PC manufacturers 0:11:32.559 --> 0:11:36.240 to conform to Microsoft's desires. This would be like an 0:11:36.240 --> 0:11:40.040 oil company demanding that all car manufacturers must make their 0:11:40.040 --> 0:11:43.240 cars at a certain level of fuel inefficiency in order 0:11:43.280 --> 0:11:45.800 to sell more fuel, but it went a bit deeper 0:11:45.840 --> 0:11:49.439 than that. The government also stated that Microsoft was pressuring 0:11:49.520 --> 0:11:54.400 PC manufacturers to make it difficult to uninstall Microsoft's own 0:11:54.520 --> 0:11:58.520 web browser, Internet Explorer, and make it harder to install 0:11:58.720 --> 0:12:03.720 a competing browser, namely Netscape. The government stated that Microsoft 0:12:03.880 --> 0:12:09.199 had so tightly integrated the Windows operating system with the 0:12:09.200 --> 0:12:14.000 Internet Explorer browser that it was effectively muscling out any 0:12:14.080 --> 0:12:18.320 competing browser, and because at that time, Windows based PCs 0:12:18.480 --> 0:12:22.079 were dominating the home computer market and meant that consumers 0:12:22.120 --> 0:12:25.800 would have very little choice. The trial went all the 0:12:25.840 --> 0:12:30.800 way to a decision. That initial decision was against Microsoft, 0:12:31.080 --> 0:12:34.600 with an order to break the company up into two entities, 0:12:35.160 --> 0:12:38.200 one of which would create the Windows operating system and 0:12:38.280 --> 0:12:43.000 the other would oversee other software. This decision was overturned 0:12:43.000 --> 0:12:46.600 on appeal, partly due to the sitting judge having given 0:12:46.640 --> 0:12:50.360 interviews about the case while it was still ongoing. The 0:12:50.440 --> 0:12:54.520 courts decided to consider the case again under an adjusted scope. 0:12:54.880 --> 0:12:58.160 At that point, Microsoft proposed a settlement for the case, 0:12:58.600 --> 0:13:02.360 which the government agreed to. Microsoft would be allowed to 0:13:02.400 --> 0:13:06.720 operate as a single company. In return, Microsoft would abide 0:13:06.720 --> 0:13:10.600 by certain regulations to ensure competitiveness in the market was 0:13:10.640 --> 0:13:14.959 still possible. All right, so let's get back to Facebook. 0:13:15.440 --> 0:13:19.560 Who thinks Facebook needs to be broken up? Now? You can? 0:13:19.720 --> 0:13:22.439 You can put down your hands. It's a rhetorical question. 0:13:23.400 --> 0:13:26.920 One of those people is Chris Hughes. And who is he. 0:13:26.920 --> 0:13:32.600 He's a co founder of Facebook. Yikes. Now, to be clear, 0:13:33.160 --> 0:13:36.120 Hughes doesn't work at Facebook, and he hasn't worked there 0:13:36.200 --> 0:13:39.160 for many years. But when the founder of a company 0:13:39.240 --> 0:13:42.679 says that, yeah, maybe this company needs to be split up, 0:13:43.280 --> 0:13:47.120 that's something people tend to pay attention to. Hughes laid 0:13:47.120 --> 0:13:49.440 out his thoughts in a piece published in The New 0:13:49.520 --> 0:13:53.720 York Times on May nine, two thousand nineteen. I'm recording 0:13:53.760 --> 0:13:57.960 this episode on May two thousand nineteen, so the news 0:13:58.080 --> 0:14:02.520 is pretty fresh. Hughes. His assertion is that Mark Zuckerberg, 0:14:02.760 --> 0:14:05.839 whom he considers a friend, has far too much power, 0:14:06.240 --> 0:14:08.480 and the way he lays it out is pretty convincing. 0:14:09.080 --> 0:14:12.440 I'll quote a paragraph from the New York Times piece. Quote, 0:14:13.040 --> 0:14:17.480 Mark's influence is staggering, far beyond that of anyone else 0:14:17.520 --> 0:14:21.640 in the private sector or in government. He controls three 0:14:21.880 --> 0:14:28.240 core communications platforms, Facebook, Instagram, and WhatsApp that billions of 0:14:28.400 --> 0:14:32.320 people use every day. Facebook's board works more like an 0:14:32.320 --> 0:14:36.640 advisory committee than an overseer. Because Mark controls around sixty 0:14:36.720 --> 0:14:40.160 percent of voting shares. Mark alone can decide how to 0:14:40.200 --> 0:14:44.120 configure Facebook's algorithms to determine what people see in their 0:14:44.200 --> 0:14:47.800 news feeds, what privacy settings they can use, and even 0:14:47.920 --> 0:14:51.920 which messages get delivered. He sets the rules for how 0:14:52.040 --> 0:14:56.040 to distinguish violent and incendiary speech from the merely offensive, 0:14:56.520 --> 0:15:00.960 and he can choose to shut down a competitor by acquiring, blocking, 0:15:01.480 --> 0:15:06.760 or copying it. End quote. Okay, so let's take a 0:15:06.880 --> 0:15:10.400 look at how this came to pass, and then examined 0:15:10.480 --> 0:15:14.720 Hughes's proposal to split up Facebook. Now, I've done episodes 0:15:15.080 --> 0:15:19.000 about the history of Facebook before, so this is not 0:15:19.160 --> 0:15:22.640 going to be an exhaustive treatment. The social media site 0:15:22.680 --> 0:15:25.200 got its start back in two thousand four, when the 0:15:25.280 --> 0:15:29.320 co founders, including Mark Zuckerberg, began building out a basic 0:15:29.480 --> 0:15:33.760 social media platform aimed at college students at Harvard. It 0:15:33.840 --> 0:15:37.480 had a particular focus on dating, but rapidly grew beyond 0:15:37.600 --> 0:15:41.400 that to involve all sorts of social connections, and originally 0:15:41.600 --> 0:15:45.920 only Harvard students had access to it, but it expanded 0:15:45.960 --> 0:15:50.120 to other university campuses. It remained only open to college 0:15:50.160 --> 0:15:53.080 students until the fall of two thousand six, when the 0:15:53.120 --> 0:15:56.560 site opened up its membership to anyone. That was the 0:15:56.640 --> 0:16:00.440 same time that Facebook first introduced the news feed, which 0:16:00.480 --> 0:16:03.040 we take for granted now. This is the list of 0:16:03.160 --> 0:16:06.160 updates from your various friends, and it would be part 0:16:06.280 --> 0:16:09.320 of what Hughes includes in his arguments for breaking up 0:16:09.360 --> 0:16:13.800 the company. More on that later. Facebook's popularity was on 0:16:13.880 --> 0:16:17.680 the rise, and it was in competition with several other 0:16:17.880 --> 0:16:21.400 social networks. I talked about them recently. One big one 0:16:21.640 --> 0:16:25.040 was my Space, which had been purchased by Rupert Murdock's company, 0:16:25.160 --> 0:16:28.840 News Corps for around half a billion dollars. That gave 0:16:28.880 --> 0:16:31.240 a lot of folks over at Facebook the confidence that 0:16:31.320 --> 0:16:35.120 their company was worth even more than MySpace, as Facebook's 0:16:35.120 --> 0:16:38.040 trajectory was in growth and my Space was already starting 0:16:38.080 --> 0:16:42.440 to hit some hard barriers. During this time, Facebook was 0:16:42.520 --> 0:16:46.200 forced to innovate to set itself apart from other social networks. 0:16:46.760 --> 0:16:49.760 It needed to have the features that users would find 0:16:49.840 --> 0:16:53.200 most compelling. Competition was good, as it meant that the 0:16:53.240 --> 0:16:57.840 company was constantly improving. Sometimes this was in true innovation, 0:16:58.360 --> 0:17:00.760 and other times it was in finding a way to 0:17:00.880 --> 0:17:04.879 replicate what someone else was already doing. Zuckerberg led his 0:17:05.000 --> 0:17:08.560 company to turn down an acquisition offer from Yahoo to 0:17:08.720 --> 0:17:13.280 the tune of one billion dollars. In two thousand and seven, 0:17:13.560 --> 0:17:16.920 the company would launch its mobile platform and make available 0:17:17.000 --> 0:17:20.320 a platform for third party developers to create apps that 0:17:20.400 --> 0:17:23.920 could live on top of the Facebook experience. It wasn't 0:17:24.000 --> 0:17:27.239 until two thousand nine that Facebook reported that it had 0:17:27.320 --> 0:17:32.360 become cash flow positive. The company began acquiring other companies. 0:17:32.880 --> 0:17:35.919 It had previously acquired a company called connect You as 0:17:36.000 --> 0:17:39.720 part of a lawsuit settlement in it bought a photo 0:17:39.840 --> 0:17:45.080 sharing service called Divvy Shot. Facebook would release Facebook Messenger 0:17:45.160 --> 0:17:49.159 for Android and iOS devices in two thousand eleven, and 0:17:49.240 --> 0:17:52.959 then it made the first of its really huge acquisitions. 0:17:53.680 --> 0:17:57.320 In two thousand and twelve, Facebook paid and astonishing one 0:17:57.600 --> 0:18:02.840 billion dollars to acquire a rival social networking service, Instagram. 0:18:03.920 --> 0:18:07.160 In case you're not familiar with Instagram, it's a mobile 0:18:07.359 --> 0:18:11.399 photo sharing app. It's kind of like Facebook without all 0:18:11.440 --> 0:18:16.080 the words. It is focused almost exclusively on sharing photos 0:18:16.240 --> 0:18:20.359 and short videos among users. It's a popular platform and 0:18:20.440 --> 0:18:24.040 there are many quote unquote influencers who make their living 0:18:24.160 --> 0:18:27.800 off of Instagram in various ways, such as hosting sponsored 0:18:27.880 --> 0:18:33.080 posts on your Instagram account. It's easier set than done, though, 0:18:33.240 --> 0:18:36.200 because it requires you get a nice, big following of 0:18:36.280 --> 0:18:40.040 folks who are engaged with your content first, and those 0:18:40.080 --> 0:18:43.280 two factors, the number of followers and their engagement with 0:18:43.359 --> 0:18:46.920 your posts, are what really matter. That's why some Instagram 0:18:47.040 --> 0:18:51.480 influencers urged their users to comment on posts or even 0:18:51.560 --> 0:18:54.520 try to spell out a long word in an unbroken 0:18:54.640 --> 0:18:57.960 string of comments, each with a single letter in them. 0:18:58.640 --> 0:19:03.359 Some like me argue that this isn't really meaningful engagement, 0:19:03.600 --> 0:19:05.560 but it is a great way to inflate the number 0:19:05.640 --> 0:19:11.640 of comments of post gets anyway. Influencer tactics aside, Instagram 0:19:12.000 --> 0:19:14.880 was killing it in an area where Facebook was still 0:19:14.960 --> 0:19:18.920 having issues, namely in the mobile world, and that presented 0:19:19.000 --> 0:19:23.320 a huge challenge to Facebook. Ever, since consumer smartphones had 0:19:23.400 --> 0:19:26.560 established a real market in the wake of the iPhones release, 0:19:27.119 --> 0:19:30.680 more people were using mobile devices like phones and tablets 0:19:30.720 --> 0:19:34.960 to access the web. Computer usage didn't exactly tank, but 0:19:35.040 --> 0:19:37.240 it was clear that the mobile platform was going to 0:19:37.320 --> 0:19:41.320 play an increasingly significant role in how people interact with 0:19:41.440 --> 0:19:45.359 content on the Internet, and Facebook's mobile platform had not 0:19:45.640 --> 0:19:49.880 been performing as well as the company wanted. Instagram had 0:19:49.960 --> 0:19:53.840 really nailed down an experience that resonated with mobile users, 0:19:54.240 --> 0:19:57.240 so rather than try to build a tool to go 0:19:57.440 --> 0:20:00.760 head to head with Instagram or even copy what they 0:20:00.840 --> 0:20:05.320 did outright, Facebook acquired its rival. It was a smart 0:20:05.400 --> 0:20:09.240 move on the part of Facebook. Instagram wasn't exactly on 0:20:09.359 --> 0:20:13.200 the same level. In October of two thousand twelve, Zuckerberg 0:20:13.240 --> 0:20:17.800 announced that Facebook had hit the milestone of one billion users. 0:20:18.520 --> 0:20:24.240 Instagram only boasted twenty seven million. But the Instagram users 0:20:24.320 --> 0:20:28.720 were on Instagram more than mobile Facebook users were on Facebook, 0:20:29.200 --> 0:20:31.960 and the writing was on the wall. Facebook began to 0:20:32.080 --> 0:20:36.359 integrate many of Instagram's features into its own services, while 0:20:36.400 --> 0:20:40.600 also pushing to have more Facebook features incorporated into Instagram. 0:20:41.200 --> 0:20:45.200 This led to an environment that ultimately convinced Instagram's founders 0:20:45.280 --> 0:20:48.320 to jump ship, frustrated that their work was being shaped 0:20:48.440 --> 0:20:52.320 by someone else. So that purchase was a big one, 0:20:52.680 --> 0:20:55.840 but it would be dwarfed by the acquisition of WhatsApp 0:20:55.960 --> 0:20:59.920 in two thousand and fourteen. For that service, Facebook would 0:21:00.040 --> 0:21:06.600 fork over an astounding nineteen billion dollars and WhatsApp is 0:21:06.640 --> 0:21:09.240 one of those services that a lot of folks in 0:21:09.320 --> 0:21:12.359 the United States are unfamiliar with, as it didn't have 0:21:12.600 --> 0:21:15.760 a lot of penetration over here, so that made the 0:21:15.800 --> 0:21:18.919 whole thing even more of a head scratcher. I remember 0:21:18.960 --> 0:21:21.040 when it happened, a lot of folks were saying they 0:21:21.119 --> 0:21:25.200 spent nearly twenty billion dollars to buy who Now For 0:21:25.240 --> 0:21:28.920 those who aren't familiar, and I include myself in that category, 0:21:29.280 --> 0:21:33.360 as I've never used the service WhatsApp as a messaging service. 0:21:33.960 --> 0:21:37.159 It's tied to mobile phones, though you can use it 0:21:37.280 --> 0:21:40.760 on a PC if the associated phone is also connected 0:21:40.800 --> 0:21:43.280 to the Internet. It was created by a couple of 0:21:43.359 --> 0:21:46.920 former Yahoo employees, and yeah, I find it kind of 0:21:46.960 --> 0:21:48.760 funny that a couple of folks who worked for a 0:21:48.840 --> 0:21:52.440 company that tried to buy Facebook would ultimately find their 0:21:52.520 --> 0:21:56.880 startup bought by Facebook later on. Because it works over 0:21:56.920 --> 0:22:00.159 the Internet, it doesn't follow the same protocols as a 0:22:00.280 --> 0:22:03.119 text message, and so for people who have a limit 0:22:03.480 --> 0:22:06.359 on how many texts they can send per month before 0:22:06.520 --> 0:22:10.639 being charged extra, it's a valuable service. Rather than sending 0:22:10.840 --> 0:22:14.959 SMS messages, you use the Internet and sidestep those restrictions. 0:22:15.560 --> 0:22:18.600 In the earliest pitch for the service, users would post 0:22:18.640 --> 0:22:21.200 a status that would populate out to everyone in that 0:22:21.359 --> 0:22:24.840 users social network, essentially the friends who were also using 0:22:24.920 --> 0:22:27.600 that service. This made it sort of like Twitter in 0:22:27.640 --> 0:22:30.920 a way, except it wasn't doing it through SMS. This 0:22:31.080 --> 0:22:34.800 quickly evolved into more of an instant messengers service. He 0:22:35.000 --> 0:22:37.520 used phone numbers as the log in so there was 0:22:37.560 --> 0:22:40.280 no need for user names or passwords. If you were 0:22:40.320 --> 0:22:42.399 logging in on the phone, you were good to go. 0:22:42.840 --> 0:22:45.919 You didn't even have to give WhatsApp other information about yourself, 0:22:46.040 --> 0:22:50.119 like your gender, age, or address. It became a paid 0:22:50.200 --> 0:22:54.000 for service in which users would fork over the princely 0:22:54.200 --> 0:22:58.040 sum of a shiny dollar per year for a subscription, 0:22:58.320 --> 0:23:01.959 and the first year was free. This helped cover verification 0:23:02.080 --> 0:23:06.080 costs the company was incurring while establishing accounts. The user 0:23:06.160 --> 0:23:10.760 base grew, and by it was around two hundred million users, 0:23:11.200 --> 0:23:14.440 and then two thousand fourteen happened. More on that in 0:23:14.600 --> 0:23:18.280 just a second, but first let's take another quick break. 0:23:25.920 --> 0:23:30.119 So Facebook comes in and slams down this guard gantuan 0:23:30.240 --> 0:23:35.800 deal for WhatsApp nineteen point three billion dollars for an 0:23:35.800 --> 0:23:38.880 app that in two thousand fifteen would become the most 0:23:39.080 --> 0:23:44.160 popular messaging app in the world with six hundred million users. 0:23:44.840 --> 0:23:48.480 So why was Facebook so gung ho on getting WhatsApp? 0:23:49.080 --> 0:23:53.520 According to analysts, WhatsApp had only earned twenty million dollars 0:23:53.840 --> 0:23:56.320 in two thousand thirteen, So how the heck did we 0:23:56.400 --> 0:24:01.000 get to nineteen billion for the offer? Well, for one thing, 0:24:01.320 --> 0:24:04.800 while the company wasn't raking in mountains of cash compared 0:24:04.880 --> 0:24:09.000 to a goliath like Facebook, it was the fastest growing 0:24:09.119 --> 0:24:13.240 company in terms of users in all of history. That's 0:24:13.320 --> 0:24:16.280 enough right there to make Zuckerberg take notice, as the 0:24:16.440 --> 0:24:20.600 numbers of users of his service helped define his company's value. 0:24:21.359 --> 0:24:25.399 Another factor is that whenever people were using WhatsApp, they 0:24:25.480 --> 0:24:29.960 weren't using Facebook. There's a limitation of time at play here, 0:24:30.520 --> 0:24:34.000 and Facebook wants as much of a user's time as 0:24:34.040 --> 0:24:37.320 they can get. The more time a user spends on 0:24:37.440 --> 0:24:41.680 Facebook services, the more information Facebook can gather to serve 0:24:41.760 --> 0:24:44.760 up targeted ads, and the more money Facebook can get 0:24:44.840 --> 0:24:48.359 from advertisers. As I've said many times, and I'm not 0:24:48.640 --> 0:24:52.719 the first person to say this, it's Facebook's users who 0:24:52.760 --> 0:24:56.800 are the actual product of the company. Or rather, it's 0:24:56.800 --> 0:25:01.280 our time and our information and our attention. Facebook can 0:25:01.320 --> 0:25:05.440 say to an advertiser, Hey, because of these acquisitions, the 0:25:05.560 --> 0:25:08.680 average user is spending something like two hours out of 0:25:08.840 --> 0:25:12.520 every day on one of our services. Don't you want 0:25:12.560 --> 0:25:15.440 your ads to play on that kind of platform. WhatsApp 0:25:15.560 --> 0:25:20.800 was outpacing Facebook messenger engagement time, and so like Instagram, 0:25:21.160 --> 0:25:23.720 Facebook needed to figure out how to meet this challenge, 0:25:24.240 --> 0:25:26.720 and the answer was to buy the threat and make 0:25:26.760 --> 0:25:29.720 it part of the company. And just like with Instagram, 0:25:30.080 --> 0:25:33.119 Facebook would make changes to WhatsApp and place demands on 0:25:33.200 --> 0:25:36.280 the service that would lead to its founders leaving the company. 0:25:37.119 --> 0:25:40.160 To bring this back to Facebook co founder Chris Hughes, 0:25:41.000 --> 0:25:44.280 he asserts that it was a mistake for the Federal 0:25:44.440 --> 0:25:50.119 Trade Commission or FTC to approve both acquisitions. Perhaps at 0:25:50.119 --> 0:25:53.480 the time it was understandable as Instagram was still relatively 0:25:53.560 --> 0:25:58.120 small and WhatsApps revenues were relatively modest compared to Facebook. 0:25:58.520 --> 0:26:01.440 But by becoming part of the large your company, Facebook 0:26:01.520 --> 0:26:04.359 was able to reduce the number of competitors vying for 0:26:04.520 --> 0:26:09.840 users time and attention. Now Facebook controls three powerful platforms 0:26:10.160 --> 0:26:14.480 that are slowly merging together into a more integrated experience. This, 0:26:15.040 --> 0:26:20.760 says Hughes, gives Suckerberg unprecedented control over communication channels. Facebook 0:26:20.840 --> 0:26:24.640