
Did Facebook panic? - dave1619
http://finance.fortune.cnn.com/2012/04/09/did-facebook-panic/?hpt=hp_t1
======
uptown
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-...](http://blog.1000memories.com/94-number-of-photos-ever-taken-
digital-and-analog-in-shoebox)

...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
_before it became too expensive._

1b is not expensive yet? What is expensive then? Yahoo (10-15b)?

~~~
doktrin
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
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.

~~~
silentscope
the NY Times is valued at 900 million.

just sayin'

~~~
PakG1
The NY Times is also part of what is widely considered a sunset industry, even
with its online properties. It's not implausible for companies in sunrise
industries to become more valuable than the NY Times in the future, even if
their revenue models are not yet clear.

~~~
silentscope
print is a sunset industry. news is not. the ny times is about news, hence the
apps and online deals they have.

and just in case you think that's not enough, it's more of a revenue model
than instagram had.

------
mmahemoff
"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.)

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

~~~
16s
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
> Who is the due diligence owed to?

Um...themselves?? You don't spend a billion without doing due diligence for
yourself.

~~~
thematt
Exactly. The fact that the shareholders are private rather than public makes
no difference -- it's still a _billion_ dollars.

~~~
rbanffy
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.

------
brico
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
I think that the same thing happened with Skype..

------
keeptrying
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
That seems the most likely indeed. I wonder if google or twitter (or even
apple) were involved.

~~~
keeptrying
With this valuation there is no way that they werent.

------
dave1619
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
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
Not to mention that Instagram doesn't seem to have $1B worth of revenue
generation potential.

~~~
therobotking
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
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.

~~~
pbhjpbhj
It wouldnt take much money for Imgur to add an upload/camera app with a few
filters though would it? They're a big part of reddit content and appear to
have started accreting some of that community too.

------
staunch
> _If you need bridge financing, just ask ... your neighborhood bank (that
> Facebook offer would have served as pre-approval)._

Total BS right?

~~~
damoncali
It would not seem to be the wisest of choices.

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scythe
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...

------
eblume
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
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...](http://www.quora.com/Instagram/How-many-users-does-Instagram-
have)

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...

~~~
tripzilch
IMO that wasn't rude at all? :)

Anyway, I'd even argue it's mostly just the 27M users and the brand. While
smart founders and engineers knowing a thing or two about scale are much less
common than <code for a photo sharing app>, it's the users and the brand that
made it worth $1B to Facebook.

~~~
Egregore
If they paid 1B for 27M users it means they paid about $37 per user...

------
hub_
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
The dilution is an interesting point. Why would the founders _or_ Facebook
accept dilution (at 50% valuation!) just before an acquisition?

~~~
recoiledsnake
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

~~~
sp332
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?

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

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yaix
"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.

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iamtoby2003
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

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Radzell
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.

------
fbpcm
no

