Kevin Systrom, co-founder of Instagram Inc., speaks during an event at the Facebook Inc. headquarters in Menlo Park, California, U.S. (Photographer: David Paul Morris/Bloomberg)

Instagram Founders’ Exit Means No One to Challenge Zuckerberg

(Bloomberg) -- While he took time off for paternity leave this month, Instagram’s Kevin Systrom had time to reflect on all the small ways Facebook had started to impose its will on the photo-sharing app he co-founded.

Instagram Founders’ Exit Means No One to Challenge Zuckerberg

Earlier this year, his parent company asked for prompts within Instagram that would drive traffic and add content to its main social network. Meanwhile, Facebook removed some of the links to download Instagram from the Facebook app, people familiar with the matter said. Facebook also wanted more influence over Instagram’s functions such as ad sales, reducing the potential for growth in the app’s own staff in the coming year. Then, in July, CEO Mark Zuckerberg seemed to take credit for Instagram’s success on the company’s earnings call.

Systrom and his co-founder, Mike Krieger, had spent six years running Instagram as a division of Facebook, while pursuing their own vision for the app -- even when that was sometimes at odds with Zuckerberg’s ideas. Lately Facebook had become relentless in its pushes for data sharing, product integrations and other moves that would benefit the overall company, said the people, who asked not to be named discussing internal dynamics. When Systrom came back from leave this week, he and Krieger abruptly announced that they were leaving the social media giant. Facebook was not prepared for the news.

Instagram Founders’ Exit Means No One to Challenge Zuckerberg

“Building new things requires that we step back, understand what inspires us and match that with what the world needs,” Systrom wrote, without mentioning Zuckerberg. “We look forward to watching what these innovative and extraordinary companies do next.”

He used the plural -- “companies” -- even though without him and Krieger, Instagram will most likely start to become less of a separate entity. The founders’ exit clears the way for Zuckerberg to achieve his vision for cross-promotion among what he calls a “family of apps,” the group that encompasses Facebook, WhatsApp, Instagram and Messenger.

Instagram will probably become more integrated behind the scenes, sharing some teams and product goals with Facebook, people familiar with the matter said. No longer will anyone have founder-level authority to challenge Zuckerberg’s ideas with a discrete vision for the app’s future and brand. While absorbing Instagram more completely could help Facebook reach the goals it’s set for the app’s contribution to revenue growth targets, it may also threaten the unique culture that Instagram’s founders sought to preserve. Amid mounting scrutiny around Facebook’s data practices and its role in the spread of misinformation and hate speech, people have flocked to Instagram as an alternative. Any shift to become more Facebook-like could risk the very thing that has attracted new users and kept them coming back to Instagram.

Facebook representatives said they had no comment beyond a statement from Zuckerberg on Monday night. Facebook shares were little changed Wednesday morning in New York. They have slipped almost 7 percent this year, on track for the first annual decline since 2012, the year the company went public.

For years, Instagram relied on Facebook for resources and infrastructure, giving it enough technical backbone to support its user growth and to quickly scale up in advertising. But because Facebook’s main product was still fueling the business, Instagram’s management could get away with being choosy about what product tweaks to make. Systrom explained in a Bloomberg Television interview in 2016 that working with Zuckerberg was like having him on Instagram’s board. Instagram’s near-independence became a model for future acquisitions, including the 2014 purchases of WhatsApp and Oculus -- divisions that have both also recently lost their founders.

Now, Facebook is experiencing a decline in engagement on its main network -- some of which is due to user fatigue, and some of which is the result of product tweaks by Facebook to move attention away from harmful viral content. The trend isn’t helped by heightened government scrutiny over privacy and election interference. Instagram, which is growing more quickly and has its reputation intact, will be more crucial to Facebook’s future. That spurred increased interest from Zuckerberg and pressure on Instagram to scout out new sources of revenue and user growth that can feed into the overall company -- Instagram’s turn to give back after years of support from Facebook.

Zuckerberg’s pursuit of more influence at first started showing up in small ways. Earlier this year, Menlo Park, California-based Facebook began testing a way to show notifications for its social network within Instagram. Photos that users cross-posted from Instagram to Facebook ceased to be prominently labeled as originating from the photo-sharing app. And Instagram found it was getting less space to advertise its app within Facebook -- prime real estate that had directed traffic to its service over the years.

Zuckerberg and Systrom have always had lively debates about the future of Instagram at their regular dinner meetings at Zuckerberg’s Palo Alto home. Systrom was particularly stubborn about making moves that might change the character of the app -- which is more focused on aspirational photography of vacations and lattes than the viral political news and birthday wishes that are standard Facebook fare.

But those healthy debates evolved in recent months into uncomfortable tensions as Facebook’s revenue growth started to slow. Zuckerberg has become more invested in pursuing his vision for Instagram now that products such as Instagram Stories, the ephemeral sharing tool and Snapchat rival that grew popular on the app, are turning out to be important sales drivers. Systrom had to push harder to make bets that might compete with Facebook, like the IGTV video product. In the spring, he started reporting to Chris Cox, the Facebook chief product officer who took charge of the “family of apps,” instead of Michael Schroepfer, Facebook’s CTO. That meant he had less of an avenue to speak directly with Zuckerberg on product-specific issues, the people said.

Instagram Founders’ Exit Means No One to Challenge Zuckerberg

This year, Zuckerberg started mentioning Instagram more frequently on the company’s earnings calls, touting the app’s rise to more than 1 billion users as a testament to how effectively the acquisition was integrated within Facebook.

With Facebook’s help, Instagram grew “more than twice as quickly as it would have on its own,” Zuckerberg said in July -- a comment that Instagram employees felt was unprovable, and took as evidence of the billionaire’s desire to take credit for Instagram’s rise.

The founders’ departures cap a string of executive moves at the photo-sharing app, and at Facebook more broadly. Marne Levine, the Instagram chief operating officer who helped the app operate harmoniously with its parent, will transition to an executive role at Facebook, leading global partnerships and business development, the company said this month. Nicky Jackson Colaco, Instagram’s director of public policy, recently left the company. Kevin Weil, the head of product, was replaced by Adam Mosseri in May. Mosseri, who previously ran Facebook’s news feed, is most likely the next leader of Instagram, according to people familiar with the matter.

Those shuffles, combined with the founders’ departures, create an opening for Facebook to take charge of the product more directly. Now Zuckerberg has to decide how far to push, without risking the value of Instagram’s less-tarnished brand.

©2018 Bloomberg L.P.