But how will it improve the market? By making a less addictive (read: less engaging) app that does social media "the old fashioned way" where you connect with friends an not much else?

I love that intention, but it wouldn't be competitively viable. That's why yes, social media in that form is over. The reason Instagram and Facebook are valuable is because billions of people have accounts there and are habituated to go there in every spare second and look at whatever the screen serves them, whether that's Johnny from 7th grade math getting married or a snake being friends with a cat in rural Egypt.

> connect with friends an not much else

Not necessarily. Breaking the companies up will foster innovation via competition. Who knows what will come out of it? Will it be better than Facebook burning stacks of cash on Zuck's latest fancy(XR/AI/?)? How long will the market be confident in his dollar pyromania? I will short that company like there's no tomorrow if I was in any position to do so.

This is more my opinion than time and market-backed statement but I don't believe addictive design is good for the long-term market positions of those companies because they may be addictive now but a lot of people loathe them* and are looking to escape from their design. They will jump on whatever comes next and not look back. What's good for the company long-term is to provide value to the user - local groups, FB marketplace, etc and become embedded in the culture and society.

* needs citation but it looks like the article supports this view