8 ms·

Did Facebook panic?

111 points by dave1619 15y ago

hub_ 15y ago
I would say "yes". But that's pure speculation. However I wouldn't be surprised there was a bidding and that big names like Google or Apple might have been in the loop. Time will tell, or maybe not.
- sp332 15y ago
  The dilution is an interesting point. Why would the founders or Facebook accept dilution (at 50% valuation!) just before an acquisition?
  - recoiledsnake 15y ago
    It could've gone like this: Facebook: We'll give you $600M Instagram: No, we want $1B FB: No deal Instagram: Ok we're going to raise our own money FB: Good luck with that IG: See, we raised our own money and just closed it too and our Android app has 1M downloads on Google platform... FB: panic Okay lets do $1B
    - ubi 15y ago
      I think this makes a lot of sense, given the price tag and seemingly quick turnaround.
    - loverobots 15y ago
      "FB: Good luck with that" Instagram: We'll try Google. They could use something to jumpstart Google+
    - sp332 15y ago
      I'm not sure about this. If we say FB offers $600M, and Instagram is holding out for a billion, it wouldn't make sense for Instagram to go prove that it's only worth $500M (valuation), right?
  - sowbug 15y ago
    If it was $50M on $500M post, then it's just a bit more than 10% dilution, which isn't too bad. But either way, that $50M buys two things: (1) a floor on near-term future price negotiations, and (2) a strong signal that they were nowhere near needing to sell and instead that they could go another 18+ months growing their walled garden of eyeballs. That second point could have spurred a big company like Facebook to overpay a little now rather than having to risk squelching an upcoming competitor a year from now at a GeoCities-like price.
    - cienrak 15y ago
      This was a Geo-Cities-like price - not adjusted for inflation ;)
trotsky 15y ago
Hard to believe you can do a billion dollars worth of due diligence over the weekend.
- 16s 15y ago
  Are they not still a private firm? Who is the due diligence owed to? I'm sure they've been watching this and mulling it over for quite some time and that the folks in charge approve. That's all they need to do.
  - pork 15y ago
    > Who is the due diligence owed to? Um...themselves?? You don't spend a billion without doing due diligence for yourself.
    - thematt 15y ago
      Exactly. The fact that the shareholders are private rather than public makes no difference -- it's still a billion dollars.
      - rbanffy 15y ago
        Unless Zuckerberg used his credit card. With that kind of expense he must be trying to get to the ISS on mileage. ;-) Now, more seriously, Instagram's size makes due diligence a lot easier.
- jimmyvanhalen 15y ago
  facebook may have been thinking about this for months.
- jedberg 15y ago
  The Facebook deal was only announced today. It will close in a month. That month will be partially consumed with due diligence.
- martingordon 15y ago
dave1619 15y ago
I thought I read before that Facebook tried to buy Instagram last summer but it didn't happen (my guess is that they offered $500m). I think FB might have offered too low last summer, and has been watching Instagram ever since. Instagram's growth is amazing and they have the network effect in the mobile photo market. I personally think Facebook got a great deal at $1b and that Instagram will continue to grow and reach 100+ million users within the next couple years. $1b to acquire Instagram will look cheap in a few years.
- viscanti 15y ago
  I'd be careful extrapolating growth based on a photo filter trend. The big benefit of Instagram is making mediocre camera-phone pictures look "better" by adding filters. As camera-phones improve and tastes change (which is inevitable), Instagram's value could significantly decrease. I think you're underestimating the risk in this acquisition.
  - jack-r-abbit 15y ago
    Not to mention that Instagram doesn't seem to have $1B worth of revenue generation potential.
    - therobotking 15y ago
      I wish that sometimes companies like these didn't get acquired before they had to start making money for themselves. When everyone is scared that everyone else is going to purchase the "next big thing" first we get these crazy purchase prices. If they'd just been allowed to run up huge server/bandwidth bills, fail to monetize and shutdown it would return some sanity to the world.
      - moultano 15y ago
        I'd love to see some stats comparing instagram to say imgur. I'd be willing to bet that imgur is serving more views, and certainly making more money. Different market, but still.
staunch 15y ago
> If you need bridge financing, just ask ... your neighborhood bank (that Facebook offer would have served as pre-approval). Total BS right?
- damoncali 15y ago
  It would not seem to be the wisest of choices.
deleted 15y ago
[deleted]
brico 15y ago
I've got the feeling that because of the Google/Apple/Microsoft-rivalry a lot a companies are bought just so that the others don't get them. Company X wants to buy this popular startup? Ok, we don't need it but if they want it, they need it and we can't let that happen, let's buy them.
- rkwz 15y ago
  I think that the same thing happened with Skype..
uptown 15y ago
I believe Facebook looked at what part of their platform drives the most engagement by its users, and then looked at the big players in the market that are competing. If you look at the graphic in this post: http://blog.1000memories.com/94-number-of-photos-ever-taken-digital-and-analog-in-shoebox http://blog.1000memories.com/94-number-of-photos-ever-taken-... ...you've got Facebook, then Flickr (which is arguably a dead man walking) as long as it's under the Yahoo! umbrella, then Instagram. If they look were to compare the growth of their own photo platform from mobile, and compare it to the growth of Instagram on mobile, it probably helped them make the case to buy out the fastest growing mobile photo sharing platform before it became a threat, or before it became too expensive.
- dude_abides 15y ago
  before it became too expensive. 1b is not expensive yet? What is expensive then? Yahoo (10-15b)?
  - deleted 15y ago
    [deleted]
  - doktrin 15y ago
    Frankly, this is as much confirmation as anyone should need that we are in fact in a massive financing bubble. The sums of money being bandied about are absolutely mind boggling. 1 billion for a photo sharing app?
    - JumpCrisscross 15y ago
      Billions for a pre-revenue video sharing site (YouTube)? Tens of billions for a social network (Facebook)? Remember that Yahoo! turned down Google for around $3 billion back in the day (before talks broke down with Facebook for even less). I don't know how they got to the price and so cannot argue its rationality, but having one's eyes glaze over because of the price tag alone isn't reasonable either.
      - 15y ago
mmahemoff 15y ago
"Facebook begins to get nervous that a social-sharing company like Instagram is able to migrate from iOS to Android so seamlessly." Wat? Facebook isn't run by suits who have never heard of an API. I agree it was impactful that a million people download the Android client in a day, but that was fairly predictable given the iOS popularity and no clear alternative in Android land. And it did take 18 months to move from iOS to Android! (Not that taking their time was a bad thing. I heard them at Le Web say they're focusing on good people and didn't want to hire ahead of themselves.)
tbsdy 15y ago
One billion dollars... For Instagram? While it's a great company, is it worth this much? This doesn't sound like a sane amount to buy the company for...
deleted 15y ago
[deleted]
philipithomas 15y ago
With its impending IPO, do not think that any of Facebook's actions are at all swift.
fbpcm 15y ago
no
scythe 15y ago
Alternative hypothesis: they knew of the impending valuation, and were waiting for a valuation, so they could easily make a convincing offer without overshooting and wasting money. It's possible Facebook wanted Instagram before the valuation but thought they would end up with a lower price after the valuation, if only due to the caution required in the former case. And giving any indication that they were ready to buy Instagram would have ruined the plan. With that said, my idea is no better than the article's, and possibly worse in several aspects...
keeptrying 15y ago
There was definitely a bidding war involving multiple parties. There is no other reason Facebook would buy this at this time - ie have to modify their S1 etc. Still a smart move I think on Zucks part. Tough decision and he made the right call. Photo sharing needs its own app and facebook can start with one thats already pretty good ...
- zerostar07 15y ago
  That seems the most likely indeed. I wonder if google or twitter (or even apple) were involved.
  - keeptrying 15y ago
    With this valuation there is no way that they werent.
yaix 15y ago
"Panic" is probably too strong a word. It was the perfect timing for Fb to knock down a potential rival. And what better time than right after the funding round? Making them 100% on their invested capital in just a week.
eblume 15y ago
Here's what I don't understand, and I'd love to hear why I am wrong about this because I am sure I am wrong, I just haven't grok'ed /why/. A lot of people seem to be arguing that this move may have been not to get Instagram tighter with Facebook, but rather to prevent any other platform or company from acquiring Instagram. Ergo, it's a move by Facebook to further cement their lead as 'the place you share stuff'. Ok, if that's true, in what way does buying Instagram 'further cement their lead'? Isn't Instagram really, extremely easy to code on your own? I'm in the process of learning Rails and I feel confident I could bang out a Heroku app using S3 for storage to upload/display/process photos. Then all you need is a thin native device to grab photos from the library or from the camera directly and upload it to that app. You don't need to have any platform-specific code outside of handling the camera and photo roll on the device. Point is - did this do anything to stop, say, Google Plus from making their own Instagram? Another related argument is that this means that the existing user-base of Instagram will get folded in to Facebook. Personally, I would be flabbergasted to find that more than 0.1% of Instagram users don't already have Facebook accounts. And if you are not using Facebook for photos already, you're either not going to want to share them at all, or else you've already got someplace else you want to share those photos. Basically - where is the value in this acquisition? I mean any value at all? It seems like they paid 1B to avoid having to develop a very very small app.
- jmitcheson 15y ago
  I've been thinking of ways to phrase this without sounding rude, but it's difficult to avoid sounding that way in the context of how you asked your question :) So please don't think I'm intentionally being rude... Your confusion stems from the fact that you are looking at the situation though a developers eyes. The acquisition of Instagram has nothing at all to do with the code. Nothing. It's about Instagram's users, their brand, and their founders / team. Instagram has ~27 million users [1], a good brand and smart founders. Their engineers probably know a thing or two about scale too, which I'm sure facebook would find useful. [1] http://www.quora.com/Instagram/How-many-users-does-Instagram-have http://www.quora.com/Instagram/How-many-users-does-Instagram... PS. IMO, most startup logic makes a lot more sense when you stop looking through developer-centric goggles. You're not making code you want to turn into a company, you're starting a company that you want to produce code...
iamtoby2003 15y ago
a start-up with simple technology and a couple years of history got bought up for $ 1 billion? mmm....this reminds me of the bubble in 2000
Radzell 15y ago
I don't think so they just got a big pot of money through IPO now they are flexing their muscle. Google did it, apple did it, tech company of these guy size have lots of money more than they could ever use.
vintagius 15y ago
If i were cam360 id be taking advantage of this "madness" by expending the app to be like that of Instagram and make an offer to google. I say this because cam360 has lots of users and lots of really really nice filters.Creating a network effect (Taking into account scaling) wouldnt be that hard.

111 points by dave1619 15y ago

hub_ 15y ago

I would say "yes". But that's pure speculation. However I wouldn't be surprised there was a bidding and that big names like Google or Apple might have been in the loop. Time will tell, or maybe not.

sp332 15y ago
The dilution is an interesting point. Why would the founders or Facebook accept dilution (at 50% valuation!) just before an acquisition?
- recoiledsnake 15y ago
  It could've gone like this: Facebook: We'll give you $600M Instagram: No, we want $1B FB: No deal Instagram: Ok we're going to raise our own money FB: Good luck with that IG: See, we raised our own money and just closed it too and our Android app has 1M downloads on Google platform... FB: panic Okay lets do $1B
  - ubi 15y ago
    I think this makes a lot of sense, given the price tag and seemingly quick turnaround.
  - loverobots 15y ago
    "FB: Good luck with that" Instagram: We'll try Google. They could use something to jumpstart Google+
  - sp332 15y ago
    I'm not sure about this. If we say FB offers $600M, and Instagram is holding out for a billion, it wouldn't make sense for Instagram to go prove that it's only worth $500M (valuation), right?
- sowbug 15y ago
  If it was $50M on $500M post, then it's just a bit more than 10% dilution, which isn't too bad. But either way, that $50M buys two things: (1) a floor on near-term future price negotiations, and (2) a strong signal that they were nowhere near needing to sell and instead that they could go another 18+ months growing their walled garden of eyeballs. That second point could have spurred a big company like Facebook to overpay a little now rather than having to risk squelching an upcoming competitor a year from now at a GeoCities-like price.
  - cienrak 15y ago
    This was a Geo-Cities-like price - not adjusted for inflation ;)

trotsky 15y ago

Hard to believe you can do a billion dollars worth of due diligence over the weekend.

16s 15y ago
Are they not still a private firm? Who is the due diligence owed to? I'm sure they've been watching this and mulling it over for quite some time and that the folks in charge approve. That's all they need to do.
- pork 15y ago
  > Who is the due diligence owed to? Um...themselves?? You don't spend a billion without doing due diligence for yourself.
  - thematt 15y ago
    Exactly. The fact that the shareholders are private rather than public makes no difference -- it's still a billion dollars.
    - rbanffy 15y ago
      Unless Zuckerberg used his credit card. With that kind of expense he must be trying to get to the ISS on mileage. ;-) Now, more seriously, Instagram's size makes due diligence a lot easier.
jimmyvanhalen 15y ago
facebook may have been thinking about this for months.
jedberg 15y ago
The Facebook deal was only announced today. It will close in a month. That month will be partially consumed with due diligence.
martingordon 15y ago

dave1619 15y ago

I thought I read before that Facebook tried to buy Instagram last summer but it didn't happen (my guess is that they offered $500m). I think FB might have offered too low last summer, and has been watching Instagram ever since. Instagram's growth is amazing and they have the network effect in the mobile photo market. I personally think Facebook got a great deal at $1b and that Instagram will continue to grow and reach 100+ million users within the next couple years. $1b to acquire Instagram will look cheap in a few years.

viscanti 15y ago
I'd be careful extrapolating growth based on a photo filter trend. The big benefit of Instagram is making mediocre camera-phone pictures look "better" by adding filters. As camera-phones improve and tastes change (which is inevitable), Instagram's value could significantly decrease. I think you're underestimating the risk in this acquisition.
- jack-r-abbit 15y ago
  Not to mention that Instagram doesn't seem to have $1B worth of revenue generation potential.
  - therobotking 15y ago
    I wish that sometimes companies like these didn't get acquired before they had to start making money for themselves. When everyone is scared that everyone else is going to purchase the "next big thing" first we get these crazy purchase prices. If they'd just been allowed to run up huge server/bandwidth bills, fail to monetize and shutdown it would return some sanity to the world.
    - moultano 15y ago
      I'd love to see some stats comparing instagram to say imgur. I'd be willing to bet that imgur is serving more views, and certainly making more money. Different market, but still.

staunch 15y ago

> If you need bridge financing, just ask ... your neighborhood bank (that Facebook offer would have served as pre-approval). Total BS right?

damoncali 15y ago
It would not seem to be the wisest of choices.

deleted 15y ago

[deleted]

brico 15y ago

I've got the feeling that because of the Google/Apple/Microsoft-rivalry a lot a companies are bought just so that the others don't get them. Company X wants to buy this popular startup? Ok, we don't need it but if they want it, they need it and we can't let that happen, let's buy them.

rkwz 15y ago
I think that the same thing happened with Skype..

uptown 15y ago

I believe Facebook looked at what part of their platform drives the most engagement by its users, and then looked at the big players in the market that are competing. If you look at the graphic in this post: http://blog.1000memories.com/94-number-of-photos-ever-taken-digital-and-analog-in-shoebox http://blog.1000memories.com/94-number-of-photos-ever-taken-... ...you've got Facebook, then Flickr (which is arguably a dead man walking) as long as it's under the Yahoo! umbrella, then Instagram. If they look were to compare the growth of their own photo platform from mobile, and compare it to the growth of Instagram on mobile, it probably helped them make the case to buy out the fastest growing mobile photo sharing platform before it became a threat, or before it became too expensive.

dude_abides 15y ago
before it became too expensive. 1b is not expensive yet? What is expensive then? Yahoo (10-15b)?
- deleted 15y ago
  [deleted]
- doktrin 15y ago
  Frankly, this is as much confirmation as anyone should need that we are in fact in a massive financing bubble. The sums of money being bandied about are absolutely mind boggling. 1 billion for a photo sharing app?
  - JumpCrisscross 15y ago
    Billions for a pre-revenue video sharing site (YouTube)? Tens of billions for a social network (Facebook)? Remember that Yahoo! turned down Google for around $3 billion back in the day (before talks broke down with Facebook for even less). I don't know how they got to the price and so cannot argue its rationality, but having one's eyes glaze over because of the price tag alone isn't reasonable either.
    - 15y ago

mmahemoff 15y ago

"Facebook begins to get nervous that a social-sharing company like Instagram is able to migrate from iOS to Android so seamlessly." Wat? Facebook isn't run by suits who have never heard of an API. I agree it was impactful that a million people download the Android client in a day, but that was fairly predictable given the iOS popularity and no clear alternative in Android land. And it did take 18 months to move from iOS to Android! (Not that taking their time was a bad thing. I heard them at Le Web say they're focusing on good people and didn't want to hire ahead of themselves.)

tbsdy 15y ago

One billion dollars... For Instagram? While it's a great company, is it worth this much? This doesn't sound like a sane amount to buy the company for...

deleted 15y ago

[deleted]

philipithomas 15y ago

With its impending IPO, do not think that any of Facebook's actions are at all swift.

fbpcm 15y ago

scythe 15y ago

Alternative hypothesis: they knew of the impending valuation, and were waiting for a valuation, so they could easily make a convincing offer without overshooting and wasting money. It's possible Facebook wanted Instagram before the valuation but thought they would end up with a lower price after the valuation, if only due to the caution required in the former case. And giving any indication that they were ready to buy Instagram would have ruined the plan. With that said, my idea is no better than the article's, and possibly worse in several aspects...

keeptrying 15y ago

There was definitely a bidding war involving multiple parties. There is no other reason Facebook would buy this at this time - ie have to modify their S1 etc. Still a smart move I think on Zucks part. Tough decision and he made the right call. Photo sharing needs its own app and facebook can start with one thats already pretty good ...

zerostar07 15y ago
That seems the most likely indeed. I wonder if google or twitter (or even apple) were involved.
- keeptrying 15y ago
  With this valuation there is no way that they werent.

yaix 15y ago

"Panic" is probably too strong a word. It was the perfect timing for Fb to knock down a potential rival. And what better time than right after the funding round? Making them 100% on their invested capital in just a week.

eblume 15y ago

Here's what I don't understand, and I'd love to hear why I am wrong about this because I am sure I am wrong, I just haven't grok'ed /why/. A lot of people seem to be arguing that this move may have been not to get Instagram tighter with Facebook, but rather to prevent any other platform or company from acquiring Instagram. Ergo, it's a move by Facebook to further cement their lead as 'the place you share stuff'. Ok, if that's true, in what way does buying Instagram 'further cement their lead'? Isn't Instagram really, extremely easy to code on your own? I'm in the process of learning Rails and I feel confident I could bang out a Heroku app using S3 for storage to upload/display/process photos. Then all you need is a thin native device to grab photos from the library or from the camera directly and upload it to that app. You don't need to have any platform-specific code outside of handling the camera and photo roll on the device. Point is - did this do anything to stop, say, Google Plus from making their own Instagram? Another related argument is that this means that the existing user-base of Instagram will get folded in to Facebook. Personally, I would be flabbergasted to find that more than 0.1% of Instagram users don't already have Facebook accounts. And if you are not using Facebook for photos already, you're either not going to want to share them at all, or else you've already got someplace else you want to share those photos. Basically - where is the value in this acquisition? I mean any value at all? It seems like they paid 1B to avoid having to develop a very very small app.

jmitcheson 15y ago
I've been thinking of ways to phrase this without sounding rude, but it's difficult to avoid sounding that way in the context of how you asked your question :) So please don't think I'm intentionally being rude... Your confusion stems from the fact that you are looking at the situation though a developers eyes. The acquisition of Instagram has nothing at all to do with the code. Nothing. It's about Instagram's users, their brand, and their founders / team. Instagram has ~27 million users [1], a good brand and smart founders. Their engineers probably know a thing or two about scale too, which I'm sure facebook would find useful. [1] http://www.quora.com/Instagram/How-many-users-does-Instagram-have http://www.quora.com/Instagram/How-many-users-does-Instagram... PS. IMO, most startup logic makes a lot more sense when you stop looking through developer-centric goggles. You're not making code you want to turn into a company, you're starting a company that you want to produce code...

iamtoby2003 15y ago

a start-up with simple technology and a couple years of history got bought up for $ 1 billion? mmm....this reminds me of the bubble in 2000

Radzell 15y ago

I don't think so they just got a big pot of money through IPO now they are flexing their muscle. Google did it, apple did it, tech company of these guy size have lots of money more than they could ever use.

vintagius 15y ago

If i were cam360 id be taking advantage of this "madness" by expending the app to be like that of Instagram and make an offer to google. I say this because cam360 has lots of users and lots of really really nice filters.Creating a network effect (Taking into account scaling) wouldnt be that hard.