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Zuckerberg negotiated Instagram deal without Facebook board approval

138 points by 3lit3H4ck3r 14y ago

samstave 14y ago
"I'm the M&A master, bitch!" I am sure we would all love to be in a position where we can have a straight conversation with another company and after that conversation solely choose to spend $1B on acquiring them.
jgrahamc 14y ago
Not a surprise. A Facebook insider told me recently that "It's Mark's company." Nothing happens without his approval, and, in fact, he controls it completely. Just look at the blocks of shares he controls as revealed by the S-1.
- Shivetya 14y ago
  I seriously doubt he makes a move without Sandy's approval.
- OzzyB 14y ago
  It doesn't surprise me at all either -- it has anti-CEO written all of it. Edit: Which to me isn't a bad thing necessarily.
carguy1983 14y ago
I've heard from insiders that Microsoft M&A almost always goes through the finance/model/quantitative motions, but sometimes Gates (in the past) and Ballmer just get into a straight bidding war, consequences be damned.
nextstep 14y ago
Bullshit. I presume Zuckerberg is making these claims to remove the board members -- many of whom also happened to be Istagram investors -- from any suspicion of wrongdoing. But clearly the price jump just prior to Facebook's acquisition lends credence to reports that many of Facebook's board will walk away with boatloads of cash from this deal. They were certainly under pressure to complete this prior to going public next month.
- jonursenbach 14y ago
  I doubt that. They were going to make "buttloads of cash" anyway when the IPO goes through. I doubt they'd risk something insidery as that to get a few more.
  - joejohnson 14y ago
    Marc Andreessen and Peter Thiel were on both sides of this deal: http://www.donnaklinenow.com/investigation/instagram-scam http://www.donnaklinenow.com/investigation/instagram-scam
    - joshu 14y ago
      That article is bonkers. Eg Marc is not a General Partner at Benchmark. He might be a Limited Partner which actually just means "investor."
  - ojbyrne 14y ago
    Oh please. You could fill a very large book with the stories of people who went to jail because, despite huge amounts of wealth, they did something insiderish for a few dollars more.
- dethstarr 14y ago
  I always have to think as the proverbial conniving "gangsta" about stuff like this. If you had a way to make $1 billion by getting yourself a secure $3 billion loan that could easily be paid off by another company you have influence in, would you do it? It's common sense. The thing is, I think it was a good buy, similar to Google and YouTube.
chimeracoder 14y ago
> The report says he was afraid of Mr. Systrom reacting negatively had he been approached through lawyers first. That doesn't make sense. You can certainly reach a tentative deal in person and then have lawyers take care of the details, which doesn't preclude bringing it to the board. In fact, I know this is very common specifically because many lawyers complain that they feel that their jobs are simply to codify agreements that have already been essentially decided before they were even consulted. (To be fair, aside from possibly being insulting to the lawyer, this does make lawyers' lives harder, much the same way that it's always better to go to a lawyer saying 'Here's a document - should I sign it?' as opposed to 'Here's the contract I signed - now please tell me my rights'.)
- fleitz 14y ago
  If they don't like getting paid $500+ an hour to draft contracts perhaps they should find a different job. Also, I pay my lawyer for advice as to the legal risks of my conduct, not to dictate my conduct, I can't make his job harder, only make it take longer which should make him happy as he gets paid by the hour. If I'm willing to sign contracts with out consulting him that create legal risk for myself why should he care? His job is simply to inform me that what I signed gave me these risks. Someone getting $500 an hour should be a little more respectful as to what their job actually is, and why their clients retain them. Similarly when I consult, I give advice, if the customer wants to build something that I don't think will appeal then in end that is what gets built along with all the risks inherent in that decision.
  - drgath 14y ago
    Somewhere there are some lawyers saying the exact same thing about someone they hired to build them a website. "Seriously... this kid started complaining when I told him I wanted it like X, and he said it should be like Y cause it'll be easier and quicker. I make the decisions, why should he care? He's just a code monkey and I pay him by the hour. He should be happy I'm even paying him at all. Ungrateful shit."
    - fleitz 14y ago
joezydeco 14y ago
So, reading between the lines, does this mean a) Systrom threw out the $2B number just to say "no, but if you really want it, this is what I'll take" and b) Zuckerberg had no idea Instagram had just closed their latest round and/or had no idea what the valuation was?
stevenj 14y ago
Original: http://news.ycombinator.com/item?id=3856515 http://news.ycombinator.com/item?id=3856515
hemancuso 14y ago
Bad headline by Ars. They lead with this quote: The board, according to one person familiar with the matter "Was told, not consulted." But follow up with the important bit: Facebook's board did vote on the deal, according to people familiar with the matter, though it was largely symbolic. The take-away is that they trust Zuck fully, but they still voted. He did garner approval from the board. The original WSJ article is worth reading: http://online.wsj.com/article/SB10001424052702304818404577350191931921290.html http://online.wsj.com/article/SB1000142405270230481840457735...
- mikeryan 14y ago
  I'm not terribly versed in board voting policies. But if Zuck has 57% of the voting shares is there a way for the board to block this if they wanted to? Or I guess more precisely, aren't all the FB board votes symbolic?
  - amirmc 14y ago
    There may be minority protections and veto rights on things like acquisitions, company-sale and other substantive decisions. Edit: FB's probably in league of it's own though (as someone else mentioned, the S-1 filings would likely have the kind of info I'm referring to)
  - lisper 14y ago
    No, the board votes are binding. But Zuck has complete control over the composition of the board, so he can pack it with whoever he wants. He can also remove members of the board at will. There is probably a limit to how much crazy shit he could pull before he would start to have trouble finding qualified people willing to serve on the board (which would probably in turn tank FB's stock price), but I don't think this comes anywhere close to that limit. It seems to me that this was a sound acquisition notwithstanding the potential conflicts of interest, and that Zuck used his authority in exactly the way that he should have to get it done with dispatch. It will be interesting to see what happens the first time he uses his authority to do something really questionable.
Craiggybear 14y ago
People used to go to jail for this type of shit. When we had fiscal oversight and corporate law.
- mseebach 14y ago
  When has quarrels between the board and the CEO of non-public companies ever been the concern of criminal law?
  - jfoutz 14y ago
    Oh, mostly around the turn of the century with rail, oil, and steel trusts. Just for clarity, i'm not claiming anything like is happening now.
    - mseebach 14y ago
      Now you've tickled my curiosity. Do please elaborate?
      - jfoutz 14y ago
        I guess i don't have an example. apparently JP Morgan used to like to lock people in his library till he got his way - but this specific case is other bank owners, not his board http://en.wikipedia.org/wiki/Panic_of_1907 http://en.wikipedia.org/wiki/Panic_of_1907 Andrew Carnegie negotiated deals between companies he controlled, collecting commission on both sides of the deals. I vaguely remember that being pretty contentious. False imprisonment and collusion are exiting, must have overshadowed the exact circumstances in my memory.
    - wpietri 14y ago
      Do you have an example? The bits that I recall are all government vs trust instead of board + government vs CEO.
  - Craiggybear 14y ago
    When the other board members bring charges ... Which they might or might not, depending on the true financial picture of FB. I am certain I would take offence at 1bn being spent on my behalf without prior consultation. Its actually a criminal offence and possibly could construe false accounting. Do you know what those words mean? Spending money demands a paper trail and minuted meeting notes. Or used to. If you can now spend that amount without due ovetsight its no wonder we're financially shafted. He's not the Emporor. Bitch.
wunderland 14y ago
The board was aware of the deal, voted in favor of it, and many of the board members benefitted immensely through their stakes in Instagram. But now Zuckerberg claims that it was solely his decision? It looks Facebook is working to distance the conflicted parties from this situation.
kposehn 14y ago
Interesting. There are of course several people who doubt the actual recusal of the board from the deal, but when you look at this from a pure Facebook perspective, and not a board member perspective, it does make immense sense to purchase Instagram. Instagram is pretty much the perfect way to take pictures and share them, so FB picking them up for $1b is actually akin to Google's purchase of YouTube. The notion that Zuckerberg did not consult the board is very logical as well - he knows the scrutiny they are all under, and such a critical deal getting substantively tainted by conflicts of interest would cause many issues in the long run. The drum beat of "Instagram scam" posts and commentary about the conflicts of interest would be far worse if the deal were known well ahead of time. Zuckerberg is no fool and I'd expect him to be truthful in saying that the board had no knowledge - it is to their direct advantage to do so.
- Estragon 14y ago
  But for $1B, couldn't facebook just reimplement Instagram's interface and forcefeed it to facebook users? It's not like it needs the Instagram network, right?
  - redthrowaway 14y ago
    Reimplementing it would take time, and as with any large software project, there's no guarantee of success. How much do you think Google spent on G+, between wages, acquihires, and the like? Would it not have made more sense had they just bought facebook? G+ is still a nascent, fragile, pseudo-success. Facebook was proven and growing when Google made their offer. Facebook could have remade Instagram, but there's no guarantee users would like it. Instead, now they have Instagram, its users, its growth, and its cachet; they've solved the photosharing hole in their app in one fell swoop. Sometimes it's better to pay more for a sure thing. Plus, they got 12 new employees, so it's really only about $83MM each...
    - kposehn 14y ago
      Agreed; FB could try to re-implement, but there is no guarantee they'd come even close to what Instagram had accomplished. In cases like this, it makes more sense to purchase someone with momentum rather than try and build it yourself.
chubbyheckler 14y ago
He is the board. Guy has a tremendous amount of shares.
Mystalic 14y ago
Things people seem to keep forgetting through this entire affair: 1) Zuck, with his 57% voting proxy, has absolute control over the company. He doesn't need to consult anybody for his decisions, even Sandberg or the board. 2) With that said, he made sure they voted. The board still needs to vote for it to be legal, but if they were to vote it down, Zuck could simply remove the dissident board members with his 57% share. 3) This acquisition was defensive, not offensive, in nature. Yes, Facebook could have created its own filters, but it was worried that Instagram could become THE social network for sharing images. That would be bad for Facebook, since that's it's the undisputed leader in that space. Zuck knew it would be more expensive to leave Instagram independent than to take it out now for a high price. 4) No matter who acquired Instagram, there were going to be conflicts of interest. Twitter's CoI is actually worse -- it's Executive Chairman, Jack Dorsey, was an angel investor in Instagram. This is why Zuck doesn't make investments, I suspect.
- ksec 14y ago
  I have no idea about broad meetings, how many % do you need in meetings to make such a move? I was under the assumption you only need over 50%, which he has already. Or is it different US?
- padobson 14y ago
  I'm not a huge photo-sharer, and I certainly don't claim to be an expert on the space, so forgive my ignorance when I ask if photos is really a billion dollar beach head - a 1% of Facebook billion dollar beach head. Did Facebook simply look at their activity, determine that 25% of their engagement is driven by photosharing, and decide that 1% of the company was more than reasonable to protect that space? Or something to that effect?
  - Mystalic 14y ago
    Something like that. Facebook saw that Instagram was adding users fast and dominating mobile (a weakness of Facebook's). The plurality, if not the majority, of Facebook activity revolves around photo sharing and photo interactions (photos get way more engagement than the sharing of links). So Zuck decided to take them out of the competitive landscape now, while it could still afford to, rather than risk Systrom turning Instagram into a major social network that siphoned away significant amounts of activity from Facebook.com
mrb 14y ago
In past HN threads, people wondered why Mark wanted to keep control of the majority of Facebook shares... Well the reason is he wants control precisely to be able to do these sorts of deal. He wants to buy a company when he wants to without involving Facebook's board of directors. He wants to run his company the way he wants. I totally respect and understand that.
pg 14y ago
closed -> negotiated
deleted 14y ago
[deleted]
kirillzubovsky 14y ago
Am I reading this wrong, or there's generally a negative attitude towards this news? It seems that people are upset that a 27 year-old, who's worth ~30Bn on paper, could buy a 1Bn dollar company for breakfast without any adult supervision. The negativity weirds me out. Aside for the personality traits, why doesn't everyone want to be where Zuck's at? In my opinion, no one should be asking "why Zuck was able to do it", but rather ask "what should I do to be in the position to do the same?"
- joezydeco 14y ago
  I see some negativity, but I also see some head scratching. My response is the latter. No matter your net worth, even Warren Buffet would do a bit more footwork before deciding to wake up one morning and spend a billion dollars on something. Perhaps Zuck would have found out that Sequoia just valued the company for 25% of the price Systrom was asking? Or do you think the mere act of starting a larger disclosure process would get leaked out and shoot the value up to 1 billion anyway?
  - prewett 14y ago
    Actually, Warren Buffet is known for deciding to by companies within in a 10 minute phone call. (But that's because he is always researching companies, so he knows what a good one looks like)
    - sireat 14y ago
      Most famously, he was following IBM for 50+ years until he decided time was right to purchase.
- gavinlynch 14y ago
  You're not reading it wrong. People are looking for a reason to be negative because they are predisposed.
- kirillzubovsky 14y ago
  Just to further extend this point, I feel that PG's comment - "closed -> negotiated" - hasn't gotten enough attention. Think about this. Not only Zuck changed the rules on control (taking as much power as he could in his hands), he's also changed the way M&A talks are conducted, thereby helping all of us who are still working towards our first billion. Think how often you hear stories of M&A deals fall through because large companies end up screwing entrepreneurs. Now, if the new standards for negotiation is 3 days, more people would be able to sleep at night. After all, you can now confidently go in, name a price, negotiate on it for an hour, and then close and go one with your life, building a stronger company. Isn't it what you'd want anyway?
biot 14y ago
Take the same situation but replace "Mark Zuckerberg" with "Steve Jobs" and most people would just nod and see it being business as usual.
- dkrich 14y ago
  Would that have been true when Jobs was 27? Evidently not since it was around that time that he was booted from his own company.
dkrich 14y ago
Strategically I am missing why Instagram is even viewed as a threat to Facebook. It seems like a complementary service. If Instagram tried to go the route of forcing you to be a member and only share photos with other Instagram users, nobody would use it. Facebook and Twitter provide the platform for Instagram to exist.
- bgilroy26 14y ago
  Probably because Instagram could ease users' transition to another social site. If something like Google+ hit it off with everybody and they could move all of their pictures with the press of a button and keep their Instagram UI, that lowers the barriers of entry for people to come along and steal FB's cake.
got2surf 14y ago
The thing a lot of tech people don't understand (including a few of the commenters here) is how important Instagram is in friend circles that aren't ours :P I've never even felt the need to use Instagram, but two friends of mine (17 and 15) can't stop using it. They told me "no one shares pictures on Facebook anymore, it's just not cool." I mean, with how rapidly the Facebook demographics shift, we'd be making a huge error in assuming that Instagram isn't vital just because we have no use for it. Actually, we could draw a parallel to Pinterest's early lack of support in male-dominated VC circles. At the end of the day, 40m people love Instagram, and 40m is a good chunk of Facebook's market.
alastairpat 14y ago
I'm not sure about US law, but in Australia the directors could be personally in breach of their statutory duties by (even symbolically) approving such a transaction without checking it out. This was a huge transaction by anyone's standard – it could definitely be argued that the directors weren't acting with the required standard of care by approving it so quickly and readily, which puts them in a really awkward place; damned if they do, removed from the board if they don't. Again, this is in the context of Australian corporate law, but I imagine it's not incredibly dissimilar in the US.
bluelu 14y ago
In 3 years from now, Zuckerberg will be seen as a genius. He will extend facebook advertising to Instagram as well and be break even in 3 years. You will see :-)
spullara 14y ago
Zuckerberg had a failed takeover attempt similar to the Yahoo-Facebook deal in 2009 with Twitter. Perhaps this time he was determined to close it. http://www.businessweek.com/technology/content/mar2009/tc2009031_743025.htm http://www.businessweek.com/technology/content/mar2009/tc200...

138 points by 3lit3H4ck3r 14y ago

"I'm the M&A master, bitch!" I am sure we would all love to be in a position where we can have a straight conversation with another company and after that conversation solely choose to spend $1B on acquiring them.

jgrahamc 14y ago

Not a surprise. A Facebook insider told me recently that "It's Mark's company." Nothing happens without his approval, and, in fact, he controls it completely. Just look at the blocks of shares he controls as revealed by the S-1.

Shivetya 14y ago
I seriously doubt he makes a move without Sandy's approval.
OzzyB 14y ago
It doesn't surprise me at all either -- it has anti-CEO written all of it. Edit: Which to me isn't a bad thing necessarily.

carguy1983 14y ago

I've heard from insiders that Microsoft M&A almost always goes through the finance/model/quantitative motions, but sometimes Gates (in the past) and Ballmer just get into a straight bidding war, consequences be damned.

nextstep 14y ago

Bullshit. I presume Zuckerberg is making these claims to remove the board members -- many of whom also happened to be Istagram investors -- from any suspicion of wrongdoing. But clearly the price jump just prior to Facebook's acquisition lends credence to reports that many of Facebook's board will walk away with boatloads of cash from this deal. They were certainly under pressure to complete this prior to going public next month.

jonursenbach 14y ago
I doubt that. They were going to make "buttloads of cash" anyway when the IPO goes through. I doubt they'd risk something insidery as that to get a few more.
- joejohnson 14y ago
  Marc Andreessen and Peter Thiel were on both sides of this deal: http://www.donnaklinenow.com/investigation/instagram-scam http://www.donnaklinenow.com/investigation/instagram-scam
  - joshu 14y ago
    That article is bonkers. Eg Marc is not a General Partner at Benchmark. He might be a Limited Partner which actually just means "investor."
- ojbyrne 14y ago
  Oh please. You could fill a very large book with the stories of people who went to jail because, despite huge amounts of wealth, they did something insiderish for a few dollars more.
dethstarr 14y ago
I always have to think as the proverbial conniving "gangsta" about stuff like this. If you had a way to make $1 billion by getting yourself a secure $3 billion loan that could easily be paid off by another company you have influence in, would you do it? It's common sense. The thing is, I think it was a good buy, similar to Google and YouTube.

chimeracoder 14y ago

> The report says he was afraid of Mr. Systrom reacting negatively had he been approached through lawyers first. That doesn't make sense. You can certainly reach a tentative deal in person and then have lawyers take care of the details, which doesn't preclude bringing it to the board. In fact, I know this is very common specifically because many lawyers complain that they feel that their jobs are simply to codify agreements that have already been essentially decided before they were even consulted. (To be fair, aside from possibly being insulting to the lawyer, this does make lawyers' lives harder, much the same way that it's always better to go to a lawyer saying 'Here's a document - should I sign it?' as opposed to 'Here's the contract I signed - now please tell me my rights'.)

fleitz 14y ago
If they don't like getting paid $500+ an hour to draft contracts perhaps they should find a different job. Also, I pay my lawyer for advice as to the legal risks of my conduct, not to dictate my conduct, I can't make his job harder, only make it take longer which should make him happy as he gets paid by the hour. If I'm willing to sign contracts with out consulting him that create legal risk for myself why should he care? His job is simply to inform me that what I signed gave me these risks. Someone getting $500 an hour should be a little more respectful as to what their job actually is, and why their clients retain them. Similarly when I consult, I give advice, if the customer wants to build something that I don't think will appeal then in end that is what gets built along with all the risks inherent in that decision.
- drgath 14y ago
  Somewhere there are some lawyers saying the exact same thing about someone they hired to build them a website. "Seriously... this kid started complaining when I told him I wanted it like X, and he said it should be like Y cause it'll be easier and quicker. I make the decisions, why should he care? He's just a code monkey and I pay him by the hour. He should be happy I'm even paying him at all. Ungrateful shit."
  - fleitz 14y ago

joezydeco 14y ago

So, reading between the lines, does this mean a) Systrom threw out the $2B number just to say "no, but if you really want it, this is what I'll take" and b) Zuckerberg had no idea Instagram had just closed their latest round and/or had no idea what the valuation was?

stevenj 14y ago

Original: http://news.ycombinator.com/item?id=3856515 http://news.ycombinator.com/item?id=3856515

hemancuso 14y ago

Bad headline by Ars. They lead with this quote: The board, according to one person familiar with the matter "Was told, not consulted." But follow up with the important bit: Facebook's board did vote on the deal, according to people familiar with the matter, though it was largely symbolic. The take-away is that they trust Zuck fully, but they still voted. He did garner approval from the board. The original WSJ article is worth reading: http://online.wsj.com/article/SB10001424052702304818404577350191931921290.html http://online.wsj.com/article/SB1000142405270230481840457735...

mikeryan 14y ago
I'm not terribly versed in board voting policies. But if Zuck has 57% of the voting shares is there a way for the board to block this if they wanted to? Or I guess more precisely, aren't all the FB board votes symbolic?
- amirmc 14y ago
  There may be minority protections and veto rights on things like acquisitions, company-sale and other substantive decisions. Edit: FB's probably in league of it's own though (as someone else mentioned, the S-1 filings would likely have the kind of info I'm referring to)
- lisper 14y ago
  No, the board votes are binding. But Zuck has complete control over the composition of the board, so he can pack it with whoever he wants. He can also remove members of the board at will. There is probably a limit to how much crazy shit he could pull before he would start to have trouble finding qualified people willing to serve on the board (which would probably in turn tank FB's stock price), but I don't think this comes anywhere close to that limit. It seems to me that this was a sound acquisition notwithstanding the potential conflicts of interest, and that Zuck used his authority in exactly the way that he should have to get it done with dispatch. It will be interesting to see what happens the first time he uses his authority to do something really questionable.

Craiggybear 14y ago

People used to go to jail for this type of shit. When we had fiscal oversight and corporate law.

mseebach 14y ago
When has quarrels between the board and the CEO of non-public companies ever been the concern of criminal law?
- jfoutz 14y ago
  Oh, mostly around the turn of the century with rail, oil, and steel trusts. Just for clarity, i'm not claiming anything like is happening now.
  - mseebach 14y ago
    Now you've tickled my curiosity. Do please elaborate?
    - jfoutz 14y ago
      I guess i don't have an example. apparently JP Morgan used to like to lock people in his library till he got his way - but this specific case is other bank owners, not his board http://en.wikipedia.org/wiki/Panic_of_1907 http://en.wikipedia.org/wiki/Panic_of_1907 Andrew Carnegie negotiated deals between companies he controlled, collecting commission on both sides of the deals. I vaguely remember that being pretty contentious. False imprisonment and collusion are exiting, must have overshadowed the exact circumstances in my memory.
  - wpietri 14y ago
    Do you have an example? The bits that I recall are all government vs trust instead of board + government vs CEO.
- Craiggybear 14y ago
  When the other board members bring charges ... Which they might or might not, depending on the true financial picture of FB. I am certain I would take offence at 1bn being spent on my behalf without prior consultation. Its actually a criminal offence and possibly could construe false accounting. Do you know what those words mean? Spending money demands a paper trail and minuted meeting notes. Or used to. If you can now spend that amount without due ovetsight its no wonder we're financially shafted. He's not the Emporor. Bitch.

wunderland 14y ago

The board was aware of the deal, voted in favor of it, and many of the board members benefitted immensely through their stakes in Instagram. But now Zuckerberg claims that it was solely his decision? It looks Facebook is working to distance the conflicted parties from this situation.

kposehn 14y ago

Interesting. There are of course several people who doubt the actual recusal of the board from the deal, but when you look at this from a pure Facebook perspective, and not a board member perspective, it does make immense sense to purchase Instagram. Instagram is pretty much the perfect way to take pictures and share them, so FB picking them up for $1b is actually akin to Google's purchase of YouTube. The notion that Zuckerberg did not consult the board is very logical as well - he knows the scrutiny they are all under, and such a critical deal getting substantively tainted by conflicts of interest would cause many issues in the long run. The drum beat of "Instagram scam" posts and commentary about the conflicts of interest would be far worse if the deal were known well ahead of time. Zuckerberg is no fool and I'd expect him to be truthful in saying that the board had no knowledge - it is to their direct advantage to do so.

Estragon 14y ago
But for $1B, couldn't facebook just reimplement Instagram's interface and forcefeed it to facebook users? It's not like it needs the Instagram network, right?
- redthrowaway 14y ago
  Reimplementing it would take time, and as with any large software project, there's no guarantee of success. How much do you think Google spent on G+, between wages, acquihires, and the like? Would it not have made more sense had they just bought facebook? G+ is still a nascent, fragile, pseudo-success. Facebook was proven and growing when Google made their offer. Facebook could have remade Instagram, but there's no guarantee users would like it. Instead, now they have Instagram, its users, its growth, and its cachet; they've solved the photosharing hole in their app in one fell swoop. Sometimes it's better to pay more for a sure thing. Plus, they got 12 new employees, so it's really only about $83MM each...
  - kposehn 14y ago
    Agreed; FB could try to re-implement, but there is no guarantee they'd come even close to what Instagram had accomplished. In cases like this, it makes more sense to purchase someone with momentum rather than try and build it yourself.

chubbyheckler 14y ago

He is the board. Guy has a tremendous amount of shares.

Mystalic 14y ago

Things people seem to keep forgetting through this entire affair: 1) Zuck, with his 57% voting proxy, has absolute control over the company. He doesn't need to consult anybody for his decisions, even Sandberg or the board. 2) With that said, he made sure they voted. The board still needs to vote for it to be legal, but if they were to vote it down, Zuck could simply remove the dissident board members with his 57% share. 3) This acquisition was defensive, not offensive, in nature. Yes, Facebook could have created its own filters, but it was worried that Instagram could become THE social network for sharing images. That would be bad for Facebook, since that's it's the undisputed leader in that space. Zuck knew it would be more expensive to leave Instagram independent than to take it out now for a high price. 4) No matter who acquired Instagram, there were going to be conflicts of interest. Twitter's CoI is actually worse -- it's Executive Chairman, Jack Dorsey, was an angel investor in Instagram. This is why Zuck doesn't make investments, I suspect.

ksec 14y ago
I have no idea about broad meetings, how many % do you need in meetings to make such a move? I was under the assumption you only need over 50%, which he has already. Or is it different US?
padobson 14y ago
I'm not a huge photo-sharer, and I certainly don't claim to be an expert on the space, so forgive my ignorance when I ask if photos is really a billion dollar beach head - a 1% of Facebook billion dollar beach head. Did Facebook simply look at their activity, determine that 25% of their engagement is driven by photosharing, and decide that 1% of the company was more than reasonable to protect that space? Or something to that effect?
- Mystalic 14y ago
  Something like that. Facebook saw that Instagram was adding users fast and dominating mobile (a weakness of Facebook's). The plurality, if not the majority, of Facebook activity revolves around photo sharing and photo interactions (photos get way more engagement than the sharing of links). So Zuck decided to take them out of the competitive landscape now, while it could still afford to, rather than risk Systrom turning Instagram into a major social network that siphoned away significant amounts of activity from Facebook.com

mrb 14y ago

In past HN threads, people wondered why Mark wanted to keep control of the majority of Facebook shares... Well the reason is he wants control precisely to be able to do these sorts of deal. He wants to buy a company when he wants to without involving Facebook's board of directors. He wants to run his company the way he wants. I totally respect and understand that.

pg 14y ago

closed -> negotiated

deleted 14y ago

[deleted]

kirillzubovsky 14y ago

Am I reading this wrong, or there's generally a negative attitude towards this news? It seems that people are upset that a 27 year-old, who's worth ~30Bn on paper, could buy a 1Bn dollar company for breakfast without any adult supervision. The negativity weirds me out. Aside for the personality traits, why doesn't everyone want to be where Zuck's at? In my opinion, no one should be asking "why Zuck was able to do it", but rather ask "what should I do to be in the position to do the same?"

joezydeco 14y ago
I see some negativity, but I also see some head scratching. My response is the latter. No matter your net worth, even Warren Buffet would do a bit more footwork before deciding to wake up one morning and spend a billion dollars on something. Perhaps Zuck would have found out that Sequoia just valued the company for 25% of the price Systrom was asking? Or do you think the mere act of starting a larger disclosure process would get leaked out and shoot the value up to 1 billion anyway?
- prewett 14y ago
  Actually, Warren Buffet is known for deciding to by companies within in a 10 minute phone call. (But that's because he is always researching companies, so he knows what a good one looks like)
  - sireat 14y ago
    Most famously, he was following IBM for 50+ years until he decided time was right to purchase.
gavinlynch 14y ago
You're not reading it wrong. People are looking for a reason to be negative because they are predisposed.
kirillzubovsky 14y ago
Just to further extend this point, I feel that PG's comment - "closed -> negotiated" - hasn't gotten enough attention. Think about this. Not only Zuck changed the rules on control (taking as much power as he could in his hands), he's also changed the way M&A talks are conducted, thereby helping all of us who are still working towards our first billion. Think how often you hear stories of M&A deals fall through because large companies end up screwing entrepreneurs. Now, if the new standards for negotiation is 3 days, more people would be able to sleep at night. After all, you can now confidently go in, name a price, negotiate on it for an hour, and then close and go one with your life, building a stronger company. Isn't it what you'd want anyway?

biot 14y ago

Take the same situation but replace "Mark Zuckerberg" with "Steve Jobs" and most people would just nod and see it being business as usual.

dkrich 14y ago
Would that have been true when Jobs was 27? Evidently not since it was around that time that he was booted from his own company.

dkrich 14y ago

Strategically I am missing why Instagram is even viewed as a threat to Facebook. It seems like a complementary service. If Instagram tried to go the route of forcing you to be a member and only share photos with other Instagram users, nobody would use it. Facebook and Twitter provide the platform for Instagram to exist.

bgilroy26 14y ago
Probably because Instagram could ease users' transition to another social site. If something like Google+ hit it off with everybody and they could move all of their pictures with the press of a button and keep their Instagram UI, that lowers the barriers of entry for people to come along and steal FB's cake.

got2surf 14y ago

The thing a lot of tech people don't understand (including a few of the commenters here) is how important Instagram is in friend circles that aren't ours :P I've never even felt the need to use Instagram, but two friends of mine (17 and 15) can't stop using it. They told me "no one shares pictures on Facebook anymore, it's just not cool." I mean, with how rapidly the Facebook demographics shift, we'd be making a huge error in assuming that Instagram isn't vital just because we have no use for it. Actually, we could draw a parallel to Pinterest's early lack of support in male-dominated VC circles. At the end of the day, 40m people love Instagram, and 40m is a good chunk of Facebook's market.

alastairpat 14y ago

I'm not sure about US law, but in Australia the directors could be personally in breach of their statutory duties by (even symbolically) approving such a transaction without checking it out. This was a huge transaction by anyone's standard – it could definitely be argued that the directors weren't acting with the required standard of care by approving it so quickly and readily, which puts them in a really awkward place; damned if they do, removed from the board if they don't. Again, this is in the context of Australian corporate law, but I imagine it's not incredibly dissimilar in the US.

bluelu 14y ago

In 3 years from now, Zuckerberg will be seen as a genius. He will extend facebook advertising to Instagram as well and be break even in 3 years. You will see :-)

spullara 14y ago

Zuckerberg had a failed takeover attempt similar to the Yahoo-Facebook deal in 2009 with Twitter. Perhaps this time he was determined to close it. http://www.businessweek.com/technology/content/mar2009/tc2009031_743025.htm http://www.businessweek.com/technology/content/mar2009/tc200...