Motley Fool Hidden Gems Investing - The Inside Story of Instagram

Episode Date: March 20, 2022

Few people know Instagram better than Bloomberg News tech reporter Sarah Frier. Author of the award-winning book No Filter: The Inside Story of Instagram, she talked with Ricky Mulvey about: - How parent company Meta Platforms affects Instagram’s user experience today - CEO Mark Zuckerberg’s role in company acquisitions - The company’s shift into the metaverse Want more background on investing in metaverse stocks? Click here: https://www.fool.com/investing/stock-market/market-sectors/information-technology/metaverse-stocks/ Stocks: FB, SNAP, AAPL Host: Ricky Mulvey Guest: Sarah Frier Engineers: Tim Sparks, Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

Don't you wish you could just hit skip on the worst parts of your life? You know, the same way you can skip an ad? I get it. I'm Siaya and I live in Ice Cove. I've made some questionable decisions that didn't end up the way I planned. And today I'm still figuring it out. Somehow things usually get worse before they get better. Apparently, that's how I roll.

So bundle up and come along for the bumpy ride. Stream a new episode of North of North Tuesdays on CBC Gem. They're always thinking about growth. They're always thinking about what's next. They're always thinking about products they can design and how they can crush the competition. And they're not thinking about how to clean up their messes. And they're not thinking about how to retain the users they already have by making the product higher quality. In 2012, Facebook bought Instagram for $1 billion.

Today, Instagram is estimated to be worth $100 billion. To get those kind of results, sometimes you have to break a few things along the way. I'm Chris Hill, and that was Sarah Fryer, tech reporter for Bloomberg News and author of the award-winning book, No Filter, The Inside Story of Instagram. Ricky Mulvey caught up with her to talk about how Facebook, now known as meta platforms, focus on growth at all costs affects Instagram's user experience today. The fundamental reason behind the company's shift to the metaverse and a lot more. We're more than 10 years from then Facebook buying Instagram. Is Instagram in danger of

losing that cachet? The co-founders aren't there anymore. People are moving to TikTok. Instagram is seen as different. And part of that was the building blocks that Kevin Systrom built when founding it, which was, it's going to be this simple platform. Is it losing that simplicity, though? Is it just going to be eaten alive by Facebook? Oh, it's absolutely losing its simplicity, losing what made it great in the beginning. Listen, people went to Instagram because it was just easy.

You would go to Instagram, you knew exactly what to do. you take a photo you post it with a filter and suddenly your everyday moments have turned into these nostalgic memories and you know they have this collection of art about your life essentially and now when you go to instagram imagine being a new user of instagram and you're going and you have like five different ways to post video you could you could post on your reels you can go post on ig tv you can put something in your highlights you can put something in your story oh, by the way, your story disappears after 24 hours, but if you put it on the feed, it stays there. Oh, but sometimes if your video is too long on the feed, it'll bump people to IGTV.

It's just so not simple. And I think that that is exactly, I mean, there are probably some people listening to this podcast who don't even understand half those words I said, because they're just used to using Instagram and the main way that it was always designed and it's launched in 2010. you know, there's always a balance, right? Platforms have to grow to compete. Um, they have to give someone, give their, their great content creator something fresh and new to stand out with. However, you can try to be too many things to too many people. And I think that that's that's one of the issues that Instagram, since the founder's departure, Instagram has become the venue for facebook to try to fight for the young person demographic and so everything they

do is in service of trying to be relevant to young people which is to say they have a competitor to youtube they have a competitor to tiktok they have a competitor to the messaging apps all within the same product and i think that it gets confusing and i think you're right it could it could ultimately lose the simplicity and purpose that brought people to it in the first place. What did Kevin Systrom and Mike Krieger, what did they hope Instagram would become when they started it in 2010? When bourbon was shutting down and Instagram was starting up, did they have that five-year, 10-year timeline? Or was this just the next idea that became a $100 billion asset for meta? I think that they didn't have, they didn't anticipate that this would be what it turned out

to be. But once they started to see it gain momentum, once they joined Facebook and saw, oh, wait, the way that we do things is really different. People actually like Instagram. They like posting here. They enjoy tailoring their lives to Instagram. The impact of Instagram on our everyday life um it's visible you can see people arranging their their weddings their vacations the way that they date the way that they dress the way that they eat it's it's all changed um the way that they work out all changed because of instagram and i think when they started to see that and notice that they started to think wow this thing could actually be bigger than facebook one day um this is this is something that has real potential to be like something that

grows in line with with popular culture as uh regular people strive to become influencers and as celebrities strive to become influencers you know everyone was was trying to work in both directions. And I think that Facebook recognized that. And instead of letting it thrive in that direction, Mark Zuckerberg became jealous. He became threatened. He didn't want Instagram to, and this was a big surprise in the reporting for my book, No Filters, is that Mark Zuckerberg looked at this and said, we don't want Instagram to cannibalize Facebook. We don't want this to become bigger than Facebook. In fact, we want to use the popularity of Instagram to drive people into Facebook. One thing you wrote in No Filter that I think really exemplifies that

is he, meaning Zuckerberg, asked Systrom to build a prominent link within the Instagram app to send his users to Facebook. And alongside the Facebook newsfeed, in the navigation of all of the social networks, other prospects, like groups and events, Zuckerberg removed the link to Instagram. Yeah. Facebook tried to essentially work against the asset that it bought. It didn't want it to grow bigger than the property that it purchased. Do you think that jealousy, that essentially working against this now multi-billion dollar asset, is that what led the co-founders to leave the company? Oh, absolutely. It wasn't just that. It was the hands-on direction from Zuckerberg. They were told that they would be able to be independent, and now everything that they were trying to build, Zuckerberg had very strong opinions about.

One example being when they did finally launch IGTV, Kevin Systrom, the CEO of Instagram, got a call from Zuckerberg that day, or a call from his manager who had just heard from Zuckerberg. And it wasn't like, oh, congrats on the big launch. The call was, your logo looks too much like the Facebook Messenger logo. It had a squiggly in it. This looks too much like the Facebook Messenger logo and it was anger. And I think that's how they thought this is how it's going to go. When you're in a position where you can't get anything done because everything is controversial with your boss, that makes for an uncomfortable future. So now, Adam Seri runs Instagram. He's the former head of News Feed. He's been running it since 2018. And the company, Instagram, is so much more closely integrated with Facebook. You see it in e-commerce. You see it in messaging. In fact, Instagram messaging works under the same team as Messenger, and they're trying to combine those, or they have combined those products, and they're going to combine that with WhatsApp. And it's all supposed to become this mega network, which is ultimately Zuckerberg's goal, is that he has the largest group of connected humans in the world. You've also reported on how Systrom called Zuckerberg more of a board member than a boss.

He was more like, hey, we're not going to take you over. We're just going to advise you. The employees are going to stay in place. What do you think the turning point was where they realized, oh, when they acquired us, they actually bought the company, even though we put all of our worth into this company. They bought us out and now we have a new boss. Where do you think that turning point was where Facebook became that boss and not just an advisor to Instagram? Well, I think it was in Kevin Systrom's interest to frame himself as still the boss for the entirety of his tenure. I mean, he didn't even report to Mark Zuckerberg. That wasn't his direct manager when he was there in the beginning. So he reported to someone below

Zuckerberg. So I think that that was in his interest. And then the thing that really surprised me is when Instagram started, there was all this myth around Instagram being an independent product within Facebook. Well, when they started, one of the first things that happened is Facebook's growth team came and asked, um, for Instagram's numbers and then said, you know what, we need to run a study to see if Instagram is the reason that people are, are not posting photos as often on Facebook. And we're, we can't let you grow until we find out the conclusion of that study. So everything was sort of on hold for a bit. And the Instagram was like, what you just spent, you just offered a billion dollars for our company which um you know was unheard of for a mobile app

at the time and you're willing to let this asset wither if it's at all competitive to facebook like that that seemed crazy to them and that study was inconclusive and they were allowed to to grow i think facebook facebook did manage to ignore instagram for a while because I don't think they really respected what Instagram was doing. The fact that Instagram was doing direct user outreach and cultivating celebrities, all these things that Facebook thought would be a total waste of time that actually worked. It wasn't until I would say 2015 that Zuckerberg said, I want a billion dollars in revenue, in annual revenue from Instagram. So that was really the first directive that showed Zuckerberg's ambitions with the

product went beyond having this little independent asset and more towards making up for a slowdown in Facebook's growth. So that started in revenue. And then in 2016, when Instagram copied Snapchat Stories. That's the 24-hour disappearing posts that were very popular on Snapchat. Mark Zuckerberg was always about trying to crush the competition, but Facebook hadn't really ever done it successfully. And when Instagram copied Snapchat Stories successfully and actually started to accelerate their growth, Zuckerberg took notice. Your book discusses how Facebook's paranoia is in its employee handbook, which says, quote, if we don't create the thing that kills Facebook, then someone else will. For the longest time, Facebook's strategy has essentially been

copycatting other platforms. Who could forget Lasso in 2017? We could all forget Lasso. We could all forget Lasso. I mean, is that what they're trying to do with Instagram stories now with TikTok, which I feel has become just a repository for things that exist on TikTok and now are just copied and pasted to Instagram? Or are they going to... Do you see their big growth driver coming from something completely new with either an acquisition or something in the metaverse? You have to look at every move Facebook makes in the context of competition because even with the metaverse, even with this area that they're trailblazing in or they hope that they're trailblazing in, the reason that they're going so hard on the metaverse is because

they don't own an operating system on mobile. So for the entire existence of the company, at least as long as it's had a mobile phone product, it's been operating in Apple's sandbox or Google's sandbox, right? They haven't really had total control over their destiny. And I think Apple's recent changes to its ad privacy rules, which if you follow Facebook, you know that's what caused their stock. One reason their stock dropped by a quarter, now it's down about a third since its earnings in February. That's why they need to build the metaverse. They need to build an environment that they can control and they are not beholden to the rules of an Apple or a Google in order to ensure the longevity of their business model. And on Instagram, on Facebook, the Reels product, it's absolutely a copycat of TikTok.

what I think is going to become difficult for them is what we learned with Instagram stories, which is you can't just copy a product and hope that it works and leave it at that. You have to think about what do my users actually want? What problem am I trying to solve for them? Is this a need that they have that I'm filling? The reason stories work so well as a competitor to Snapchat, it's because it solved the problem of users on Instagram having such terrible anxiety about everything they posted. Like Instagram had a problem with people who were thinking, well, what I'm doing in my life is not Instagrammable. So I'm not going to post. Once you get Instagram stories, these disappearing posts, then you can post something that you would

have otherwise left on the cutting room floor. So it really fit into the problem Instagram users had. What problem is Reels trying to solve? It's trying to solve a Facebook problem or a meta problem, which is that they have this competitor in TikTok. But it's not trying to solve a problem that Instagram's users have. And Facebook's made its fair share of mistakes with Instagram. But I think at the core, this is a business they paid a billion dollars for, and now it's worth 100 times that. When you're talking to early employees at Instagram and Facebook, did they know that core Facebook interest would wane? Do you think they had the foresight at the time that they needed that next generation social media platform? Well, they were rolling their eyes at Facebook

from the outset. I think every quarter is the quarter that people think, oh, well, maybe Facebook will slow down this time. And it's never really happened until this year, which is another reason that the numbers in February for the end of the year was such a shock. I think that Instagram, even if they saw the numbers on Facebook continue to go up year after year, they saw the way that it was happening, right? They saw the red dot notifications luring people back to the site, even though there wasn't really anything valuable for them to see. They saw the emails that Facebook would send out to try to rekindle interest from users who'd forgotten about Facebook.

They saw the clickbait that would go viral on Facebook or the kind of junk videos, the visual clickbait, you might call them, you just end up looking at like weird backflip tricks or cake decorating or um you know top five tricks for how to use plastic bags like those videos just go viral on on facebook but they're junk and so instagram was looking at this and thinking like we actually curate our content and give the best content to um to people who come and we have this human touch that really is unmatched by Facebook. And so I think that we're going to be, we're going to be winning in the longterm. Um, what's happened now is, is you see the same kind of, the same kind of lowest common

denominator content on Instagram. Um, I think that it's becoming a lot more like Facebook. And no filter. You write that Facebook's a better place to go viral, but Instagram is a better place to spread lies. What led you to that conclusion in your reporting? Instagram on Instagram it's not about the content it's about the person right on Facebook everything can be re-shared on Instagram it can't so when you go to somebody's profile you are you're seeing only things that they have created which then makes the profile a good reflection of that person and you decide, do I want to follow this person? Well, if you follow somebody, you have this connection with him. That's like almost like a friendship connection.

And they are very influential. What they say, how they say it can be a lot more convincing than if you were to just read a post that went viral on Facebook. And so when we see misinformation go viral on Instagram, it's from people who have a relationship with their audience like an influencer relationship. And we're seeing this, especially in wellness. Um, say you follow your, your health junkie and you've, you really care about nutrition and you follow this great nutritionist. And then they start to tell you, well, I don't think you should get the COVID vaccine because who knows what's in it. And, and, um, I'm not getting it. You make your own choice, but I'm not getting it for these reasons. And, um, you know, just using that as part of their

overall content. We'll say, this is a person you've, you followed their diet plan, you followed their workout plan, and now they're telling you not to do this. You're really going to think about it, even if it's, if it's based on misinformation. Um, and that is the way that misinformation works on Instagram. It's, it's something that is, is more intimate. And then if you are a content moderator, trying to find that and deal with it, you're not going to as easily find it because it's not like this content bubbles up to the top because there's no virality. And the way that Facebook systems work, they're trained by artificial intelligence. Artificial intelligence spots things that have some sort of momentum. Facebook is focused on taking down the stuff

that's causing the most harm first. So you're not really going to find an anti-vaxxer on Instagram because it just doesn't bubble to the top the same way it does on Facebook. One thing that's led to Instagram success and also a difficulty I have as a user is that blurred line between what's an advertisement and what's an actual post. Is this something, And at the beginning, you've written about how Kevin Systrom had to approve every single ad that ended up on Instagram. And now their ad platform is very much just integrated within Meta. Is this a problem that still exists for Instagram, that line between what's an actual post and what is an advertisement? And what is Instagram doing to kind of solve for that problem?

Well, the Federal Trade Commission in 2017 said that every ad on Instagram would have to be labeled as such. I don't think that's happened. I mean, I think that there is such a blurred line even more now because you have creators on Instagram, they may have sponsored content, or they may be just talking about a product they got for free, or it may be their own merchandise, right? Um, and so the ambiguity over what is, what is being sold to you, what isn't is, is so, um, is so there's so much ambiguity, but also Instagram is primarily about selling you people, right? Like this person who's selling you this product, you know, they also want you to listen to their podcast. They also want you to buy their merch. They also want you to, you know, send them tips on Venmo or whatever the case may be. There are all of these ways on Instagram that people are constantly selling. So I would say the line between advertisement and regular content, it's even blurrier than it was when the FTC said you have to use hashtag ad, hashtag sponsored. Because there's no... I don't even know how the Federal Trade Commission would enforce that. Well, Instagram came up with a way they said that, you know, if you're working with a brand, you can, you can connect it on their advertising system. And so it can say like, if I posted something, I could say in partnership with Starbucks, but not everything that you post that selling something is going to be in partnership with a brand. Sometimes it's stuff you're, you're selling on your own or, you know, in partnership with another creator. So it's complicated. Kind of separately, you talk to a lot of Facebook employees, you talk to a lot of Instagram employees off the record. What's it like to work for Mark Zuckerberg? You've been around people who have a good temperature of his vibe. Did they like working for him? Was it a hot-cold relationship? What did you see?

I think, you know, Zuckerberg's the big man on campus and what he says goes. I think that the way that people think about working for him, it's like he has this way he envisions the future looking. And if you are providing something aligned with that vision, he's all for it. If you're not, then don't even bother. and he has the majority voting power. He has the power at the company to get done whatever he wants to get done. It's his show. I think that people do, when they're up in the higher ranks of the company, they do enjoy working with him if they are a product mind or an engineering mind. I think if you are on the operation side, the advertising side, the business side, you're not going to get Zuckerberg's attention and you're not going to get his, um, you're not going to get to see the side of him that makes everyone excited to work with him on, on the building side of things, which is, which is probably why we've seen Facebook do this structuring of their company

in such a way that like, they're always thinking about growth. They're always thinking about what's Next, they're always thinking about products they can design and how they can crush the competition. And they're not thinking about how to clean up their messes. And they're not thinking about how to retain the users they already have by making the product higher quality. Besides thinking about it in terms of the ways that it can affect growth, like speed, like getting rid of bugs. For our last couple questions, talked about some of the problems with Instagram, but it is an incredibly powerful force. It's changed the architecture of our world, whether it's more exposed light bulbs in coffee shops or sprinkles inside of multi-layer cakes. What are some of the surprising ways that you've seen Instagram really change the architecture of our visible world? I think one of the biggest is just how everyone can be an entrepreneur on Instagram. That's something, it's really life-changing.

When we think about the creator economy, we think about influencers. You probably imagine a bathing suit-clad travel influencer getting free stays at a hotel in order to flaunt sunscreen products or whatever you have in your head when you imagine what an influencer is. In reality, influencers or creators on Instagram are in every single category of visual business, whether you're in real estate or home design or maybe you're a motivational business coach or maybe you have a finance podcast. I think that there are people who use Instagram to create a brand in almost every industry now. I've seen that become a double-edged sword because say you are a person who may get overlooked by the normal gatekeepers in society. you've always wanted to be a comedian but you know you're a black woman and you just haven't been able to get booked at the top clubs in la because they all have white men you can just start making jokes on instagram people will find them you'll get um you'll get noticed and and then

maybe you'll get your big break and i i know that that's happened with a lot of people in the entertainment industry um and in other industries in the art world the the downside is you know it's really exhausting to constantly be a brand really exhausting to have to constantly put up that that image and we've seen a lot of um young people for instance comparing themselves to the cool factor on Instagram and not realizing the corners that other people cut in order to appear more famous or more successful than they actually are. It's very easy to fake it on Instagram. It's very easy to buy followers, to buy comments, to manipulate the way your face looks, get rid of your acne, whiten your teeth. And so if you are somebody who's trying to make it in the world,

and you don't know those tactics, it can be quite depressing. You can feel inadequate. And especially, people are getting plastic surgery to look more Instagrammable. And it is also difficult too for, I think, comedy, especially stand-up comedy, where it does give you that exposure, but you're constantly pressured to post. And stand-up comedy is the kind of thing where... And somebody might steal your jokes. Somebody might steal your jokes. It could take months to develop a joke. And with Instagram, you need to, or in a lot of cases, TikTok now for comics, you got to pump out new material on a very regular basis to keep up with your following. Also real quick, just what are

some of your favorite Instagram social media rabbit holes when you're trying to avoid work maybe after doing a podcast interview? Oh, I love cooking things. One of my favorite accounts is pasta grannies. It's these old ladies in Italy who, um, make amazing pasta that they've made in their particular region for years and years and years. And, um, that kind of content I think is very feel good. I also like that during the course of reporting out my book, I've gotten to know, um, people from various corners of the world. Um, any actually since the publication of my book too. I hear from people in various countries that I probably would not have heard from in the regular course of business. Somebody from Mexico messaged me

yesterday and somebody in Dubai. And I think just getting to have that kind of open dialogue with readers around the world has helped me become more of a global reporter or have that awareness that These products, Instagram, for instance, more than 80% of its users are outside of the United States. So when we think about culture, we think about that impact, the economic impact, the societal impact. It's a very global one. Sarah Fryer is a reporter for Bloomberg News in charge of big tech coverage and the author

of No Filter, the Inside Story of Instagram. Sarah, thank you so much. Thank you. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill, thanks for listening, we'll see you tomorrow. Thank you.