Three Eras of Facebook (and the Internet), The Problems with FTC v. Meta, The Realities of Perfect Competition
Summary
Meta’s history divides into three eras, making the FTC’s case look temporally mismatched. The agency draws on emails from Facebook’s early social-network era, invokes dominance from its roughly five-year monopoly era, and seeks a breakup after TikTok forced Meta into a broad attention market. Ben Thompson’s verdict: the case treats a dynamic “4D image” as a static 2D one.
Facebook’s 2006 feed created the internet-native advertising machine that later powered Meta. Infinite content plus personalization turned disconnected profile pages into a continuously replenished attention product—“that is the internet”—even as users protested and usage reportedly rose 100X. Mobile then forced Facebook to abandon platform ambitions and become a focused, full-screen aggregator.
The Instagram acquisition was consequential but far less obviously decisive in 2012 than hindsight implies. Facebook went into its IPO around $38, fell to $19 within three months, and reached that low the same month the FTC finally approved Instagram; Thompson challenges today’s critics to explain why they did not buy the stock if the outcome was self-evident. He still believes the acquisition should not have happened, but now prefers preserving Silicon Valley’s acquisition system to imposing the blanket ban that political “blunt instruments” would likely produce.
Instagram Stories marked Meta’s peak ability to turn its existing social graph into a competitive weapon. Facebook copied Snapchat’s Stories feature, engineered it better, and gave users immediate access to friends already on Instagram—what looked “unseemly” to Andrew Sharp was also straightforward product competition. Stories initially monetized poorly and contributed to a historic stock decline, then created roughly two years of “astronomical” advertiser ROAS before measurement improved and large buyers erased the arbitrage.
Meta demonstrated monopoly power when it could knowingly suppress the video content users wanted, but TikTok ended that luxury. Zuckerberg prioritized friends-and-family connections over “video slop,” reducing usage in a move Thompson calls economically worse even if normatively defensible. TikTok proved that algorithmically selected entertainment from eight billion potential creators beats a limited social graph, forcing Meta into the same “absolute garbage that is incredibly addicting” as every other attention platform.
The ad-pricing dispute turns the usual monopoly critique on its head: Meta’s auction may feel extractive because it creates near-perfect competition among sellers. Sharp argues small businesses must surrender too much margin to online gatekeepers; Thompson counters that Meta does not set auction prices and that falling Shein and Temu demand should mechanically lower everyone else’s costs. “Perfect competition sucks” for suppliers because every merchant can reach the world—and must compete against everyone in it.
Both hosts end up treating antitrust as the wrong remedy for the internet’s race to the bottom, while disagreeing about regulation. Sharp entertains percentage caps and predicts future guardrails will make today’s unregulated feeds look “psychotic”; Thompson warns that price controls create scarcity and that regulating addictive technology can exchange social dysfunction for surveillance and red tape. His darker formulation: technology enables bad behavior, then supplies the tools citizens demand to suppress it—one route by which “technology leads to totalitarianism.”
Deep dive
1. The feed turned Facebook into the internet’s native attention product
Facebook began in 2004, but Thompson treats the 2006 feed as “the real Facebook”—Sharp’s analogy was “Dylan going electric.” Instead of visiting individual profiles and hoping something had changed, users received every update in one continuously replenished stream.
The feed combined the internet’s two defining properties: “an infinite amount of content” and personalization. It transformed online advertising from awkward print imitation into something potentially “astronomically more valuable,” because both the content format and its targeting were native to the medium.
Users hated the launch, signed petitions, and even protested outside Facebook’s offices, while usage reportedly increased 100X. Thompson sees that trauma as culture-forming: Facebook learned that immediate public reaction and hostile coverage were weaker signals than behavioral data—“look at the data”—a lesson that shaped later product decisions.
2. Zuckerberg’s platform dream obscured the business Facebook actually had
Zuckerberg wanted Facebook to resemble Windows: a durable layer supporting developers, users, payments, and applications such as FarmVille. Thompson calls operating systems extraordinary businesses because their multiple constituencies create lock-in while the platform itself “fades into the background.”
The open browser limited that ambition. Facebook could host or link to applications, but it could not build Apple-like walls around the environment; “openness is a double-sided sword.” Its early mobile app preserved the dream by wrapping the HTML5 website rather than fully embracing native mobile development.
Thompson’s 2013 argument in “Mobile Makes Facebook Just an App. That’s Good News” was that platform ambition had become Facebook’s biggest constraint. An ad-supported company must own attention and remain “front and center”; it cannot primarily serve other applications while quietly providing infrastructure beneath them.
3. Mobile forced Facebook through a genuine crisis and into its golden model
Contemporary uncertainty matters: the mobile transition threatened Facebook’s browser advertising, platform control, and user experience simultaneously. The app was poor, side-rail browser ads did not translate cleanly, and investors still feared Facebook might become another MySpace rather than an enduring institution.
Facebook went into its 2012 IPO around $38 and fell to roughly $19 within three months. That low arrived in the same month the FTC gave final approval to Instagram, which Thompson uses against hindsight certainty: “Why are you not a multimillionaire today” from buying Facebook at the moment its supposedly obvious masterstroke was approved?
Apple’s constraints ultimately helped Facebook. Mobile made it “just an app,” but that app occupied the entire screen; an in-feed advertisement could temporarily take over the display without producing the revulsion associated with a desktop pop-up or takeover.
The apparent paradox became Meta’s economic engine: “a vastly more disruptive and in-your-face ad unit” felt better than the marginal ads surrounding browser articles. Forced focus transformed Facebook from an aspiring platform into an ad-supported aggregator and began what Thompson calls its monopoly era.
4. Instagram Stories was ruthless competition, not an anticompetitive acquisition
By 2016, Thompson believed Facebook and Google had already won digital advertising while Twitter, Pinterest, LinkedIn, and Yelp were flattening. Investors searching for “the next Facebook” were likely to buy weak companies precisely because they had failed to understand the first Facebook.
Snapchat remained the plausible exception. Its private messaging retained young users, but Stories could attract outsiders, who might then adopt chat and threaten Facebook more broadly. Meta neutralized that funnel by putting a conspicuous copy of Stories inside Instagram, where users’ friends and content already existed.
Sharp calls the sequence unseemly: Snap rejected Facebook’s acquisition attempt, so Facebook effectively said, “We’re just gonna nuke your growth forever.” Thompson’s pushback—worth keeping—is that Facebook did what antitrust advocates ostensibly want: it competed, built the feature itself, engineered it better, and won.
Thompson also argues that Facebook buying Snap would have been better for Snap and its investors: it would have preserved a competitor, albeit one Facebook could outperform.
The episode exposes a motivational mismatch in criticism. The conduct that most cemented Facebook’s reputation for unfairness was arguably its cleanest competitive act; as Thompson puts it, “the number one anti-competitive thing that Facebook did in the context of destroying a competitor was actually competing.”
5. Stories and Reels both looked financially broken before becoming inventory machines
Sharp initially describes Stories as an excellent advertising format; Thompson corrects the tense. Stories eventually became phenomenal, but initially lacked adequate measurement, diverted attention from monetized surfaces, and contributed to what Thompson remembers as the largest one-day US stock decline at the time.
That mismatch—engagement arriving before monetization—created an investor opportunity. Thompson argued that Facebook had massively expanded ad inventory and would learn to monetize it, contrary to the prevailing “Facebook’s doomed” narrative; a later Meta collapse around Reels repeated essentially the same pattern.
Advertisers willing to tolerate poor attribution found approximately two years of “astronomical” ROAS on Stories. Once Facebook’s measurement improved and large buyers entered, the arbitrage closed and Facebook began capturing more of the economics.
Thompson’s insistence on chronology is the point: seeing Stories today as an obviously great ad business erases the period when users migrated faster than revenues. That is the same error he sees in FTC v. Meta—reading uncertain decisions backward from their mature outcomes.
6. Meta’s monopoly was visible when it could refuse the content users preferred
Around 2017 and 2018, with Facebook under intense political criticism, Zuckerberg reduced low-quality video and emphasized friends-and-family posts. Thompson says the data already showed people wanted “video slop,” but Facebook’s dominance let it restrict that supply and pursue its social mission anyway.
Sharp identifies the irony: a monopolist can unilaterally impose changes that reduce usage, even if they are normatively better for users. Friends-and-family content might have been normatively better, but people used Facebook less, making the change a concrete manifestation of monopoly power rather than evidence that no monopoly existed.
Zuckerberg’s sincerity also created a strategic blind spot. Facebook remained attached to “connecting people” even though a social graph cannot generate enough interesting material indefinitely; the monopoly-era freedom to disregard demand delayed its response to generalized entertainment.
7. TikTok replaced the social graph with a global video market
In 2015, Thompson predicted Facebook would need to become “TV on your phone,” though he wrongly expected more professional programming. The correct answer was user-generated content at planetary scale: friends may be boring, but eight billion people “make it up in volume,” like replacing a star through Moneyball-style aggregation.
TikTok’s network is organized around videos, not relationships. Following someone barely determines the experience; the system measures rewatches and lingering, rapidly tunes recommendations, and pulls content from across the service based on “We just think you’ll like this kind of video.”
Facebook ignored the threat while TikTok reportedly spent billions of dollars advertising on Facebook and Snap to acquire users. Meta then pivoted hard, Instagram became “Slopified,” video consumption surged, and apps increasingly converged on the same addictive format.
That transition breaks the FTC’s “personal social networking” definition for Thompson. If time and attention are the only scarce resources, Meta competes with TikTok, YouTube Shorts, X, and even Netflix—not merely Snap and the obscure MeWe.
8. The FTC is using era-one evidence to remedy an era-two monopoly in era three
Thompson’s compact indictment is temporal: the government is “taking emails from era one to complain about dominance in era two to seek a breakup in era three.” Meta remains large and powerful, but he categorically rejects the claim that it holds a present monopoly over attention.
He nevertheless maintains that Facebook should not have been allowed to acquire Instagram. His earlier work tried to distinguish an aggregator buying a potential aggregator from productive technology deals such as Apple buying PA Semi, whose capabilities could be diffused through Apple Silicon.
Thompson later concluded that politics cannot reliably preserve that strategic subtlety: “You don’t get carefulness. You get blunt instruments.” The likely result would be a blanket acquisition ban, damaging a startup system where founders can sell, spend four years “in prison” earning out inside a large company, and then try again.
After 13 years, remedying the original deal also requires speculative counterfactuals. Zuckerberg argues Instagram would not necessarily have reached its current scale without Meta’s engineering and advertising; Snap remains around 500 million users and struggles to make money, while an independent Instagram might have left TikTok even more dominant.
Thompson contrasts the internet with railroads or telephone networks: its use cases keep evolving, and the market has already pushed Facebook out of the earlier position that made the monopoly-era analysis relevant.
9. Meta’s “toll” is the price of competing with everyone, not an administered fee
Sharp connects online concentration to diminished upward mobility: small and medium-sized businesses increasingly must pay Amazon, Apple, Google, or Meta to reach customers. Even if aggregators improve the internet, he wants limits on the margins these utility-like companies can extract from businesses creating the underlying value.
Thompson rejects the premise for Meta because its ads clear through an auction. If Shein and Temu advertising goes toward zero, aggregate demand falls and everyone else should pay less; during COVID-era dips, performance marketers quickly returned whenever acquisition costs dropped below their expected customer value.
“Facebook does not set ad prices,” Thompson insists. Advertisers can buy on X or Snapchat, but choose Meta because its ads work better and can be measured; expensive inventory reflects demand for effective performance, not a monopolist unilaterally naming its price. “There is no market power in ad pricing. Period.”
His deeper answer is that Meta created near-perfect competition: every supplier can reach the entire world, but every supplier must compete against everyone else. Sharp agrees this can produce a low-quality race to the bottom and floats percentage caps; Thompson warns those are price controls inviting scarcity and circumvention. They ultimately agree antitrust does not solve the problem.
10. Regulating addictive feeds could trade private dysfunction for public control
Both hosts describe the products as degraded despite their effectiveness. Thompson finds Reels “so addictive” and disturbingly quick to reach “the worst”; Sharp has the parallel experience with X, surfacing after 30 minutes to ask, “What am I doing with my life?”
Thompson’s mechanism is disappearing friction. Television once required entering a room and turning it on; phones are permanently available. The same removal of barriers enables a Taipei-to-Washington podcast and an endless global video feed that leaves users feeling bad before they repeat the behavior tomorrow.
He adds a moral argument: once shared self-policing declines, legality substitutes for right and wrong—“as long as it’s not illegal, it’s right”—and society responds with more legislation. That produces a choice between depravity and red tape rather than restoring the norms that once constrained behavior organically.
Sharp expects future guardrails and suggests starting by banning phones in schools. Thompson’s warning is that technology both enables harmful conduct and equips the state to suppress it; China’s firewall, surveillance, industrial policy, and restrictions are intertwined, making “everything they have, but with freedom” potentially impossible.