This is very reminiscent of Google/YouTube circa 2006. When Google bought YT it was a small team of people and a pretty nascent product that people really loved, and the usage numbers were out of control. They left the product mostly untouched and let it grow on its own. Though there was major criticism at the time, it is one of the best tech acquisitions of the past decade.
So, I found something very interesting in Mark Zuckerberg's post about acquiring Instagram:<p>> we're committed to building and growing Instagram independently. Millions of people around the world love the Instagram app and the brand associated with it, and our goal is to help spread this app and brand to even more people.<p>Facebook has always integrated whatever it purchased (that I know of) very tightly into the core product, or just done an acqui-hire. Instead, they've taken what is arguably the best way to share photos and decided to keep it as a product that exists on its own.<p>This is a major strategy change for Facebook and speaks to something I have suspected for some time - they now understand that in order to continue spurring growth, they cannot just acquire and roll in every product. As the ecosystem starts to hit a long-term maturity cycle, other products that fulfill particular functions better will be key to maintaining dominance over the market as a whole.<p>Let's face it: G+ cannot topple Facebook (though it probably wasn't intended to anyway), Twitter is fairly specialized and Pinterest has come up with a new way to share that fits neatly with the other two. Instagram makes immense logic as a purchase for Facebook as they'll control one of the most important ways people share photos outside their product, neatly roping everyone that uses it right into the FB circle without feeling forced to do so.
According to WSJ price is $1B<p><i>source: <a href="http://allthingsd.com/20120409/breaking-facebook-to-acquire-instagram-for-1-billion/*" rel="nofollow">http://allthingsd.com/20120409/breaking-facebook-to-acquire-...</a><p>Edit: Direct Source: <a href="http://newsroom.fb.com/Announcements/Facebook-to-Acquire-Instagram-141.aspx" rel="nofollow">http://newsroom.fb.com/Announcements/Facebook-to-Acquire-Ins...</a><p></i>The total consideration for San Francisco-based Instagram is approximately $1 billion in a combination of cash and shares of Facebook. The transaction, which is subject to customary closing conditions, is expected to close later this quarter.<i>
Some of you might find this useful:<p><a href="https://instagram.com/accounts/remove/request/" rel="nofollow">https://instagram.com/accounts/remove/request/</a>
Some quick back-of-the-envelope math for how much the co-founders walked away with.<p>Assuming the first round of $500K was @ $2.5M valuation, giving those investors 20%. So the founders are left with 80%.<p>Further assume the 2nd round of $7M @ $20M valuation, giving those investors 35%. So the founders are left with 45%.<p>Further assume the 3rd round of $40M @ $500M valuation, giving those investors 8%. So the founders are left with 37%.<p>Also assume that the employee stock options pool is worth 10% of equity. Founders left with 27%.<p>There are two founders, according to Crunchbase [1], so assuming a 50% split for each founder, each founder has 13.5%.<p>At $1B, each founder walks away with a cool $135M in cash + Facebook stock (which is likely to appreciate significantly in a few months) - which is likely another reason they chose to go with FB as opposed to Google.<p>Not bad for 2 years worth of work.<p>[1] - <a href="http://www.crunchbase.com/company/instagram" rel="nofollow">http://www.crunchbase.com/company/instagram</a>
This seems ominous for Google, which spent $12.5bn for Motorola to stake a shaky claim in mobile and lord knows how much on G+; after this, what's left for them to do to stake a claim on social mobile? Buy Twitter? What else do people do socially with their phones?<p>Totally possible for Google to sink tens of billions into mobile and still wind up on the bottom of the value chain, commoditized along one axis by Facebook and utterly outmarketed by Apple (with its extraordinary profit margins and increasing domination of supply chains) on another.<p>Or maybe GOOG/Twitter is in the air, and Facebook is reacting defensively?
How many photo-related startups has Facebook acquired now?<p>And what do they gain from Instagram?<p>A user base? Most of them are probably already on Facebook?<p>Technology for handling photos? Doesn't Facebook already do this as well as anyone else?<p>Design and UI talent for mobile apps? Don't they already have Mike Matas?
I had been wondering how a product like Instagram would ever make money. Now we'll never find out. I guess traction really does trump all other business metrics.
Now before you all wonder about that valuation and technology, consider that Zuckerberg is actually buying the users and their data.<p>Anyone recall this back in the day?
Yahoo! buying BCST.com
<a href="http://money.cnn.com/1999/04/01/deals/yahoo/" rel="nofollow">http://money.cnn.com/1999/04/01/deals/yahoo/</a>
Does anyone else think this valuation is insane? It's like $300/registered user. The company doesn't have a business model. No way the handful of employees are worth $1B. My mind is blown.
I believe this is a bit of a pony show. Facebook will have its IPO soon with an expected valuation of $100billion. A move by Facebook to buy Instagram for $1 billion works in Facebook's favor by positioning public opinion in the following ways:<p>1. If Facebook has $1 billion to spend then they must be making a lot of money.<p>2. If Instagram is worth $1billion then surely Facebook is worth $100 billion.
According to Crunchbase and Techcrunch, they raised $40M just a month ago at a $500M valuation. Something doesn't add up here. A billion dollar deal like this had to take more than a couple of weeks to close...<p><a href="http://techcrunch.com/2012/03/08/no-filter-required-instagram-reportedly-raising-40m-at-500m-valuation/" rel="nofollow">http://techcrunch.com/2012/03/08/no-filter-required-instagra...</a>
I wonder if Facebook will force their sense of decorum onto Instagram. For example, there are people using Instagram to create interesting nude photography, which is something that is not allowed on Facebook (unless I am mistaken).<p>In any case, I bet you can expect them to force everyone to use Facebook for logging in. Yahoo eventually forced us Flickr users to get Yahoo accounts in order to log in.
I think there's a great lesson here: It takes only 2 years and 13 people to overtake one of Facebook core features. And that's talking about a company that suppose to have the best programmers and designers in the world.
That's something you should remember next time someone's tells you that Facebook/Google/Microsoft will do it better.
I have to say: it's nice to see an acquisition where the product is valued enough to not be summarily taken out back and shot. I'm curious how it fits into Facebook's product strategy though. It doesn't seem to be their style to keep a brand around that doesn't help their main brand somehow.
It's a little too late for April Fool's isn't it?<p>It seems strange that they're deciding to keep the Instagram social network up as its own independent social network, that leads me to think that their acquisition was really for their big data talent and not just to squash a smaller social network. I wish Mike Krieger's tech talk was more than two days away now, so we could hear about how they're going to merge with Facebook's big data issues too.
I'm not very clear on the main driving factor of this acquisition: is it a talent grab, a technology acquisition or did they acquire Instagram mainly for the customer base.<p>FB really wanted Instagram. They've been in talks since August 2011: <a href="http://thenextweb.com/insider/2011/08/24/facebook-couldnt-acquire-instagram-so-its-making-its-own-filters/" rel="nofollow">http://thenextweb.com/insider/2011/08/24/facebook-couldnt-ac...</a>
The price tag certainly is consistent with a 100B price tag on Facebook. I'm going to assume this merely keeps the bubble going until the IPO. In finance land there are rumors of difficulty finding people to buy into the IPO and this should theoretically instill confidence
Instagram is such a great experience for a number of reasons, but one of them is the separate network it provides from Facebook. Maybe I'm in the minority, but my Facebook network is substantially different from my Instagram network. /:<p>I hope Facebook is careful with this one…
Congratulations to the Instagram team.<p>With all the news of talent acquisition and subsequent shutdown news, my first reaction was "oh god! yet another shutdown!".<p>Thankfully there are some very good statements in the announcement. "...we're committed to building and growing Instagram independently. "<p>Hope this is true especially for the sake of all the startups that are betting on Instagram and building associated products on top.
Can someone explain how this isn't insider trading?<p>Day before deal:
- Instagram closed a $50 million Series B round from Sequoia, Josh Kushner’s Thrive Capital, Greylock and Benchmark at a $500 million valuation.<p>Day of deal:
- Company gets purchased for 1 billion.
- All investors instantly double investment.
You know, I used to be pretty lax (careless, even) about geotagging all my Instagram photos.<p>Now, should I continue to use Instagram at all, I'm definitely not going to share my location.
Given that a majority of the Instagram users (~30M) are on iOS, what if Apple decides to give away iPhoto for free? Or better yet, make it the default photo app on iOS?<p>iPhoto is not half bad.
<a href="http://itunes.apple.com/us/app/iphoto/id497786065?mt=8" rel="nofollow">http://itunes.apple.com/us/app/iphoto/id497786065?mt=8</a><p>Even if it's made the default photo sharing app in the <i>next</i> release for iOS 5+ users for whatever reason, and integrated deeper come iOS 6 this summer, they'd instantly have access to several times Instagram's userbase.<p>They could using this as a bargaining chip in their negotiations to integrate FB into iOS / iTunes. Because Facebook, a public company, cannot have a $1B acquisition become irrelevant in a couple of months.
Oh man. I could have made a billion dollars by making stuff like this. Instead I am building a long term value company like Apple. Steve Jobs may have been proud. :)
Congrats to Instagram! Can't say I am not bit disappointed though with all the startups getting gobbled up by much larger companies. What's next? Pinterest?
The best argument I've seen for justifying this is as a way for Facebook to neutralize one potential medium-term strategic threat. That said, they still probably overpaid. Who knows how much of an element of behind-the-scenes investor favors-calling-in-favors went on as well. The whole indirect "Let's get into Facebook, pre-IPO" angle, which also sounds plausible.
After only one week using Instagram for Android it was already my favorite network. Congrats for the Instagram team, but I cant deny that I just lost much of my sympathy for the network, since I can´t stand the way that Facebook handles privacy anymore.
While a bit harsh considering Instagram's success, I completely agree with this quote from Steve Jobs on startups:<p><a href="http://instagr.am/p/JNVJIwBElP/" rel="nofollow">http://instagr.am/p/JNVJIwBElP/</a>
One good thing about being bought by bigger player is that it creates a void for other smaller innovative startups. Instagram is easier to compete against now than when it was independent.
Will this mean that they'll finally get a real website? I'd love to be able to browse my friends' photos. It seemed to me that the complete lack of functionality on the single photo page (not even a link to your home page?!) seemed like a big middle finger to non-mobile users. Anytime I clicked through from facebook and twitter, the fact that I couldn't get anywhere from there was enough of a turn-off to make me avoid getting the iOS app.<p>Or maybe it'll be folded into the horrible UI mess that is FB and go away....
Looks like Gary Vaynerchuk's was right:<p><a href="http://www.youtube.com/watch?v=FKiIjhyptVA&feature=youtu.be" rel="nofollow">http://www.youtube.com/watch?v=FKiIjhyptVA&feature=youtu...</a>
I think it's cool and bold that he's sharing specific features of Instagram that they plan to preserve. It's bold because it increases the PR cost of changing those plans.
This is an interesting take:<p><a href="http://www.latimes.com/business/technology/la-fi-tn-why-facebook-bought-instagram20120409,0,7157117.story" rel="nofollow">http://www.latimes.com/business/technology/la-fi-tn-why-face...</a><p>Which basically has Facebook buying them because of the social traction. Suggesting that perhaps they did not want this to be part of Google+ which has a lot of pictures but not the same as Instagram does with the social connection.
This situation reminds me of when Facebook was worried about Twitter: most of the worry ended up being unfounded. I guess I shouldn't be surprised that Facebook was eyeing Instagram, as Facebook's photo viewing UI is now fairly similar to Instagram's. But I wonder if the worry about Instagram merited the $1B exit. Either way, given how small the Instagram team is, they must feel mighty satisfied right now.
This price makes plenty of sense if you think of as "instagram was bought for x% of facebook". I don't know facebook's current valuation, but I could be convinced that instagram is worth something between 2-10% of it (500M users vs 30M users, all sharing pictures daily). The reason for the billion dollar number has nothing to do with instagram, and everything to do with facebook.
You know what I'm afraid of? Facebook doing to Instagram what they did to Beluga.
At work, we used Beluga to communicate about work related stuff. Facebook bought it, shut it down and turned it into Facebook Messenger. Goes without saying but we didn't move our conversations/groups over to Facebook Messenger.
I really hope Instagram doesn't get treated the same way. That's all.
Zuck's announcement seems really thoughtful and authentic. He hit on a bunch of things people would be worried about -- whether things would automatically post, whether you can maintain a separate follower list from your FB list. He showed respect and humility towards Instagram's follower model, and interest in bringing it into other products. I'm impressed.
It's for the users, to prevent a competitor from 'owning' them - Facebook could block the API, otherwise all of their competitors can still gain access to them. If Facebook does start to screw around with the API then they're destroying value to the consumer.<p>It's really too bad Instagram sold so soon. I hope they took mostly money.
This is a smart move by Facebook.
I'm almost surprised to see them acknowledge in the initial announcement that they'll retain the ability for Instagram to interact with other social networks, although I'll be interested to see how thoroughly those features are supported as Facebook takes the reigns.
It's nice to see that Zuckerberg's letter actually addresses some key concerns about Instagram's future--a courtesy I haven't seen offered by many recent "acqhirers". However, to echo several other comments, it'll be interesting to see to what degree the stated intentions are actually upheld.
Great, now the biggest question is whether build for growing in users or be profitable from day one, or both.<p>AFAIK instagram didn't make any cent. Premium filters and and ads would be the first choice, but I heard they decided to focus and grow in people loving their product.<p>Another big thing to deal with is: to sell or not?
Congrats to Instagram. I think the real value that's been overlooked for Instagram is the Instagram community. Instagram has a very strong community around the world (www.instagramers.com has more than 250 chapter groups) and that may be one of the factors Facebook was looking at.
Interesting that everyone is focused on Instagram as a company and how they just got $1 billion.<p>I find it interesting that Mark and Facebook were able to buy a company for $1 billion. Its like the joke chris rock said about being wealthy.<p>"Shaq is rich, the white man that signs his check is wealthy"
I think this shows that FB felt threatened by Instagram because photos are in fact the thin edge of the wedge of social networks. People spend a lot of time on sites viewing photos and FB doesn't like when people are spending time on other networks.
Smart move by Facebook. If Google had bought Instagram instead and integrated with G+, things would have gotten interesting. Wouldn't be surprised if there was a bidding war that pushed the price this high. Reminds me of the recent Firefox deal.
I just downloaded Instagram for Android the other day and wondered how to save pictures on my phone with this tool... apparently you can't, so yes, Facebook and them play in the same court: you don't own your things anymore.
According to Wired.com the CEO is taking about $400 of the Billion.<p>Source: <a href="http://www.wired.com/epicenter/2012/04/facebook-buys-instagram/" rel="nofollow">http://www.wired.com/epicenter/2012/04/facebook-buys-instagr...</a>
What's really interesting to me is that they have a flood of geolocated pictures of places now. And they have a partnership with Microsoft. Photosynth integration on Instagram with all your photos would be amazing.
The main reason they were acquired? Not the tech, not the audience (does FB need either?). I guess for the brand + engagement? Someone said as a defense against the big G acquiring them later - sounds plausible?
HN is full of haterpraise today.
<a href="http://www.davidpcheng.com/post/20808337202/instagram-and-the-art-of-haterpraise" rel="nofollow">http://www.davidpcheng.com/post/20808337202/instagram-and-th...</a>
I am not an Instagram user, but after checking it out on my Android though it seems like if FB was playing keep away it was more likely to be trying to keep it out of Twitter's hands.
A billion dollars is an interesting sum. Any bets on whether the Instagram founders told Mark Zuckerburg,<p><i>"A million dollars isn't cool. You know what's cool? A billion dollars."</i><p>That'd be epic.
As long as they keep instagram intact as the service it is now, then awesome.<p>If Facebook kills my favorite platform, that would make for a really sad day.
by the way, 1 billion = 1 milliard<p>I was very confused since only the USA, Canada and the UK use 1 billion = 1 milliard instead of 1 billion = 1k billiard
That's an awful lot of money for a business that had no revenue and had no business model of any kind.<p><a href="http://windonaleaf.net/post/20464525754/instagram-perform-ads" rel="nofollow">http://windonaleaf.net/post/20464525754/instagram-perform-ad...</a>
Call me paranoid but for them to spend $1 billion on this silly thing tells me they think there are big profits to be made with facial recognition data.