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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

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
  - nas 14y ago
    If that's really the case then there's no way Facebook is worth what (most) people think. Instagram launched in October 2010 and were acquired with only 13 employees. If a tiny company like that even has a chance to dent Facebook's market position then they are in an extremely precarious spot, IMHO. More startups like Instagram are going to appear. No one can predict when or where but given the low barrier to entry, it's going to happen. If it costs Facebook $1B per "bullet" to kill them then they are going to run out of bullets.
    - flom 14y ago
      A lot of startups "like" Instagram already exist, but ONLY Instagram has 40+ million users, that's the difference. Just because 100 more startups get created in this space doesn't mean any of them will acquire a sufficient userbase to threaten Facebook.
      - dkrich 14y ago
        I'm thinking that his point (which I agree with) is that if a photo-sharing app with twelve people and no revenue can come from nowhere in less than two years to threaten Facebook's very existence, Facebook may not be worth $100 billion. I think the crux of this debate is whether you think Instagram was poised to become a real threat in the social space to Facebook. I think Facebook overreacted, and given this information (that Zuckerberg essentially bought it up himself) the disconnect from a realistic valuation seems even more likely. But then again, they may never get a chance to buy up companies with stock that possesses so much hype.
        alain94040 14y ago
        True. But on the other hand, look at RIM (Blackberry) and Apple (iPhone). Any large incumbent can be displaced. They take longer to die because they have cash, but they die nonetheless.
    - tybris 14y ago
      "Everything is worth what its purchaser is willing to pay for it"
- felipemnoa 14y ago
  I'll go off on a limb and posit that Facebook's real worth is a lot less than 100billion. It is still a huge amount but for now I would not say 100 billion. If so then they just bough Instagram for more than 1% of Facebook's worth (If it was mainly cash). Pure guest: 3%-5%. I would not be surprised if it was higher. However, if they purchased Instagram with mainly Facebook stock then it doesn't really matter since at such a high Facebook valuation, Facebook probably got a nice deal (because I don't think 100 billion is the right valuation). One reason I think this is that I'm remembering the high valuations that Yahoo and AOL used to have.
  - loverobots 14y ago
    Not if they paid most with FB stock valued at around $100 billion. Some caveats apply I'm sure, but I have a feeling FB will trade around $100 billion. Whether it's a good investment at $100 b or not it's a different matter, and people can disagree
    - felipemnoa 14y ago
      I too think that Facebook will trade around 100 billion, at first. My gut feeling is that eventually the stock will settle down to its true value. Think about it, a lot of people do believe that Instagram had a real chance of taking Facebook out. To put it in perspective, I do not believe there has been a startup that google has bought because there was a chance it would take them out. The main thing that google does is search, and they still do it better than anybody else. Facebook on the other hand seems to have a lot less moat, as evidenced by this purchase. If their moat is that weak than 100 billion is too risky. It could implode at any moment. The next startup or the next hot new thing could take them out.
      - loverobots 14y ago
        FB is probably going to trade at $100 billion day one, maybe a get 20% jump on excitement and I think they will keep that way for quite a few quarters as they ramp up monetization. IMO, they should not trade at $100 billion to begin with but then they have almost a billion people glued to their network. When you take China out, kids and truly old people and you're talking an insane % of the world's online population.
- vaksel 14y ago
  yeah agreed...I mean Yahoo bought Flickr for 35 million...so how is Instagram worth 28x that.
  - deleted 14y ago
    [deleted]
  - bgilroy26 14y ago
    When Yahoo bought Flickr there was no mobile market. What people get used to using all the time on their phones is a big deal, for many people, their smart phone is now the main way they browse the web and it is quickly becoming common way for them to upload pictures and participate in social media. You can move 40 million people's habits, but not easily.
- bootload 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 ..." Good question that I was also questioning why until I found this quote: "... Posts that include a photo album or a picture generate about 180% and 120% more engagement than the average post respectively, according to Facebook’s internal data. ..." ~ https://www.facebook.com/business/fmc/guides/bestpractices?campaign_id=250393211715997&creative=best https://www.facebook.com/business/fmc/guides/bestpractices?c... I suspect the purchase was specifically in response to this metric.
- codelust 14y ago
  I have a slightly different and gut-feel driven take on this. Much of Facebook's valuation is dependent on the potential of the company to monetize its user base at a much greater level in the future. This is commonly referred to the 'narrative' that investors and markets like. Of late, that narrative has been wearing a bit thin. They're adding users at a crazy pace, but monetization has not kept pace and by the time the IPO comes out, by virtue of more actual information being public, the buzz around the company will take even more of a hit. Instagram is only step towards shoring up that narrative and once they go public, I'll expect more such deals to come through. They did not acquire the company because they were scared of it. With that, I'll end my amateur attempt at mind reading :)
kmfrk 14y ago
Won't there at some point be a fiduciary duty to involve the shareholders of an acquisition of this magnitude?
- duxup 14y ago
  I'm sure he has some legal responsibly like that but it is up to shareholders to prove he failed... Even if they wanted to try to do that such action wouldn't seem likely as that might interfere with the IPO / eventual stock price and would interfere with their wishes to make a load of cash on the IPO. In short do you take a shot at the head of a company about to make you a ton of money even if you think they've made mistakes? Probably not. In fact from my understanding from institutional investors they often are privy to concerns, actions, and screw ups by companies they're heavily invested in, but don't raise concerns because ... they're heavily invested and don't want to rock the boat if it is doing well otherwise.
- jpdoctor 14y ago
  > Won't there at some point be a fiduciary duty to involve the shareholders of an acquisition of this magnitude? There was. That is what several members of the board represent: They are chosen by the shareholders.

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
- nas 14y ago
  If that's really the case then there's no way Facebook is worth what (most) people think. Instagram launched in October 2010 and were acquired with only 13 employees. If a tiny company like that even has a chance to dent Facebook's market position then they are in an extremely precarious spot, IMHO. More startups like Instagram are going to appear. No one can predict when or where but given the low barrier to entry, it's going to happen. If it costs Facebook $1B per "bullet" to kill them then they are going to run out of bullets.
  - flom 14y ago
    A lot of startups "like" Instagram already exist, but ONLY Instagram has 40+ million users, that's the difference. Just because 100 more startups get created in this space doesn't mean any of them will acquire a sufficient userbase to threaten Facebook.
    - dkrich 14y ago
      I'm thinking that his point (which I agree with) is that if a photo-sharing app with twelve people and no revenue can come from nowhere in less than two years to threaten Facebook's very existence, Facebook may not be worth $100 billion. I think the crux of this debate is whether you think Instagram was poised to become a real threat in the social space to Facebook. I think Facebook overreacted, and given this information (that Zuckerberg essentially bought it up himself) the disconnect from a realistic valuation seems even more likely. But then again, they may never get a chance to buy up companies with stock that possesses so much hype.
      - alain94040 14y ago
        True. But on the other hand, look at RIM (Blackberry) and Apple (iPhone). Any large incumbent can be displaced. They take longer to die because they have cash, but they die nonetheless.
  - tybris 14y ago
    "Everything is worth what its purchaser is willing to pay for it"
felipemnoa 14y ago
I'll go off on a limb and posit that Facebook's real worth is a lot less than 100billion. It is still a huge amount but for now I would not say 100 billion. If so then they just bough Instagram for more than 1% of Facebook's worth (If it was mainly cash). Pure guest: 3%-5%. I would not be surprised if it was higher. However, if they purchased Instagram with mainly Facebook stock then it doesn't really matter since at such a high Facebook valuation, Facebook probably got a nice deal (because I don't think 100 billion is the right valuation). One reason I think this is that I'm remembering the high valuations that Yahoo and AOL used to have.
- loverobots 14y ago
  Not if they paid most with FB stock valued at around $100 billion. Some caveats apply I'm sure, but I have a feeling FB will trade around $100 billion. Whether it's a good investment at $100 b or not it's a different matter, and people can disagree
  - felipemnoa 14y ago
    I too think that Facebook will trade around 100 billion, at first. My gut feeling is that eventually the stock will settle down to its true value. Think about it, a lot of people do believe that Instagram had a real chance of taking Facebook out. To put it in perspective, I do not believe there has been a startup that google has bought because there was a chance it would take them out. The main thing that google does is search, and they still do it better than anybody else. Facebook on the other hand seems to have a lot less moat, as evidenced by this purchase. If their moat is that weak than 100 billion is too risky. It could implode at any moment. The next startup or the next hot new thing could take them out.
    - loverobots 14y ago
      FB is probably going to trade at $100 billion day one, maybe a get 20% jump on excitement and I think they will keep that way for quite a few quarters as they ramp up monetization. IMO, they should not trade at $100 billion to begin with but then they have almost a billion people glued to their network. When you take China out, kids and truly old people and you're talking an insane % of the world's online population.
vaksel 14y ago
yeah agreed...I mean Yahoo bought Flickr for 35 million...so how is Instagram worth 28x that.
- deleted 14y ago
  [deleted]
- bgilroy26 14y ago
  When Yahoo bought Flickr there was no mobile market. What people get used to using all the time on their phones is a big deal, for many people, their smart phone is now the main way they browse the web and it is quickly becoming common way for them to upload pictures and participate in social media. You can move 40 million people's habits, but not easily.
bootload 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 ..." Good question that I was also questioning why until I found this quote: "... Posts that include a photo album or a picture generate about 180% and 120% more engagement than the average post respectively, according to Facebook’s internal data. ..." ~ https://www.facebook.com/business/fmc/guides/bestpractices?campaign_id=250393211715997&creative=best https://www.facebook.com/business/fmc/guides/bestpractices?c... I suspect the purchase was specifically in response to this metric.
codelust 14y ago
I have a slightly different and gut-feel driven take on this. Much of Facebook's valuation is dependent on the potential of the company to monetize its user base at a much greater level in the future. This is commonly referred to the 'narrative' that investors and markets like. Of late, that narrative has been wearing a bit thin. They're adding users at a crazy pace, but monetization has not kept pace and by the time the IPO comes out, by virtue of more actual information being public, the buzz around the company will take even more of a hit. Instagram is only step towards shoring up that narrative and once they go public, I'll expect more such deals to come through. They did not acquire the company because they were scared of it. With that, I'll end my amateur attempt at mind reading :)

kmfrk 14y ago

Won't there at some point be a fiduciary duty to involve the shareholders of an acquisition of this magnitude?

duxup 14y ago
I'm sure he has some legal responsibly like that but it is up to shareholders to prove he failed... Even if they wanted to try to do that such action wouldn't seem likely as that might interfere with the IPO / eventual stock price and would interfere with their wishes to make a load of cash on the IPO. In short do you take a shot at the head of a company about to make you a ton of money even if you think they've made mistakes? Probably not. In fact from my understanding from institutional investors they often are privy to concerns, actions, and screw ups by companies they're heavily invested in, but don't raise concerns because ... they're heavily invested and don't want to rock the boat if it is doing well otherwise.
jpdoctor 14y ago
> Won't there at some point be a fiduciary duty to involve the shareholders of an acquisition of this magnitude? There was. That is what several members of the board represent: They are chosen by the shareholders.