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Facebook acquires Instagram (facebook.com)
837 points by hunterowens 1843 days ago | hide | past | web | 374 comments | favorite

This is very reminiscent of Google/YouTube circa 2006. When Google bought YT it was a small team of people and a pretty nascent product that people really loved, and the usage numbers were out of control. They left the product mostly untouched and let it grow on its own. Though there was major criticism at the time, it is one of the best tech acquisitions of the past decade.

YouTube is a content paradise though. There's tons of value there and you can sell ads against it or even charge for premium services.

Where's the money in Instagram? The content is practically worthless and their only real value is in their userbase. Even though I use the Instagram client, most of the time I see photos, they come through Twitter. So that also reinforces for me that any value is in the users and not the actual content, which is mostly crap.

I'm more convinced that we're in a 2nd bubble now more than ever.

I doubt you, or anyone else, was saying that then youtube was purchased. It merely looked popular.

It turns out what Google was buying was a chance to maintain their lead in how people were going to use their computers.

Facebook is now buying a chance to maintain their lead with how people are going to use their phones.

The money in YouTube is in professional and editorially selected content. Music videos, trailers, some guy crashing a music video audition, etc.

There's almost no room for that kind of content from a photo sharing system.

Lots of people were saying that YouTube could be monetized, especially by Google, because Google needed content, which YouTube had, Google wanted to get into the booming video landscape and Google had massive bandwidth, which YouTube desperately needed. The only issue was how fast Google would clean up all of the copyright infringement and how it would affect YouTube.

"Where's the money in Instagram?"

Preventing Instagram from developing into something that has a negative effect on Facebook. It's a "keep your enemies closer" move.

That's exactly what this was. That's why he bought them a day after they closed a $50 million investment Zuckerberg freaked out about Instagram's plans to become much bigger, especially now that they just launched on Android, too.

and keeping Instagram away from Google. it's a good move.

But back to the original proposition, is this indicative of a bubble when you drop 1 Billion, or >1% of your estimated market cap on a preventive/defensive measure?

There are a few ways to look at this. The 1% is in cash and shares and we don't know the proportion or I haven't seen that anywhere so far.

Now to put the question in context if you have a small company that is worth, say $500,000, then 1% is $5000 you might spend that much (in cash alone yearly) as "insurance", say for property/casualty or liability. And you would pay that no matter what the business climate if you perceived a risk to your business, right?

But it could indicate a bubble simply because if the market is up people are more likely to overpay for anything because they feel very upbeat and enthusiastic about the future.

So paying a large number (and 1 billion is a large number and not trivial no matter how you slice it) would be more likely to happen in a bubble.

But there are to many variables in this that are not know to draw a definitive conclusion.

That said my feeling is we are in a period of irrational exuberance.

you ever play chess? A pawn is 2.6% of your game's value.

I daresay that's true, but not exactly relevant. I've also played blackjack, roulette, rock/paper/scissors, and I'm not sure if logic and tactics that work in games are always valid business plans...

There is not really a clear cut metric for deciding if we are in another bubble or not.

This is an excellent and important point, maybe the most insightful I've read in this thread.

Whatever value Instagram has for Facebook, it probably has at least double that value for Google, who could buy it just as easily. By paying a premium and showing major interest first, Facebook preempted an opportunity for Google to get some traction in the social space. Very smart move.

more like keeping instagram away from twitter

If you have billions to (over)spend, what does it say when you are terrified of tiny competitors who have shown no ability to compete with you, no revenue model and no long term ability to monetize in place?

But for 1 billion dollars, seriously?

For a fraction[1] of that they could have cloned the software pixel-by-pixel and weaved it in with facebook in a way that the original instagram couldn't.

I have trouble believing instagram was about to turn into an 1 billion dollar threat.

[1] Understatement of the month

Social sites like Facebook are mostly about photo sharing. This acquisition is all about controlling the main reason people use a social site like FB (or one that competes for it).

> I'm more convinced that we're in a 2nd bubble now more than ever.

I agree. So far I've mostly dismissed talk of "the next bubble", but this pretty much solidifies it.

Of course no one knows when the bubble will burst, so I guess investors are making as much money as they can before it inevitably does burst. It's a classic case of the "greater fool theory" http://en.wikipedia.org/wiki/Greater_fool_theory

If this acquisition goes bad, Facebook goes from being worth 100 billion dollars to being worth 99 billion dollars. People don't lose their savings or retirement accounts.

To me this just confirms that people who talk about bubbles now weren't here for the last real tech bubble.

What I was referring to with the greater fool theory is that the investors who put in ~$50 million, for a valuation of ~$500 million thought they'd find a greater fool to sell the company to, to make money off of (since I don't think Instagram could actually earn that money from its userbase), and that greater fool turned out to be Facebook.

In turn, Facebook, implicitly assumes that the greater fool from whom they will make money from this deal is the public who will buy shares when Facebook goes IPO. Because with $1 billion in profits for 2011, if the market values them at $100 billion, that will be a P/E ratio of 100. Even if they double their profit in 2012, their P/E ratio will still be 50, which is astronomical.

When people put huge money into things that have low value from a business fundamentals point of view, just because they think they can sell later on to someone else to make a huge profit, I think that's the very definition of a bubble.

What you call greater fool is just who has more value for Instagram. Instragram is worth more to Facebook than it is to Sequoia because Sequoia don't run a social network with hundreds of millions of users and aren't trying to stop Google from killing their business.

If I buy a bathtub from a bathtub warehouse at a 50% markup am I the 'greater fool' or do I just like hot baths?

> Because with $1 billion in profits for 2011, if the market values them at $100 billion, that will be a P/E ratio of 100. Even if they double their profit in 2012, their P/E ratio will still be 50, which is astronomical.

And then if it doubles again it becomes 25, and then it becomes 12, and then it becomes 6. only 4 years away to Facebook being a blue chip stock - so all that the 100 PE ratio is telling you is that they do believe that revenue and income will grow pretty quickly over the next few years.

The last bubble got messy because public markets were being used as what private equity does today. The public was shouldering the risk profile of a big VC firm that filled in all the shitty deals.

"And then if it doubles again it becomes 25, and then it becomes 12, and then it becomes 6. only 4 years away to Facebook being a blue chip stock - so all that the 100 PE ratio is telling you is that they do believe that revenue and income will grow pretty quickly over the next few years."

Those are some BIG ifs. I'm going to contrast Google and Facebook to explain why I think Facebook is overvalued.

When Google was in it's fast growth phase, it could perhaps justify a P/E like what Facebook has now - because of the way in which Google makes money. For roughly 1 out of every 14 Google searches, a user clicks a Google ad. As the amount of people on the internet grows, that means the amount of searches grow, meaning the number of ad clicks grows in tandem. Even today, with all the smartphones and tablets and people from the BRICS coming online, Google only has a P/E of 21[1].

Now contrast that with the way in which Facebook makes money. Targeted ads. The revenue they generate doesn't grow in tandem with Facebook's userbase. Granted, the revenue goes up as companies chase the eyeballs, but it seems to be a mixed bag of results selling ads on Facebook, so some companies aren't going to get the results they want and will quit Facebook. People there don't go there primarily to look at products (completely different to many Google searches). And of course some companies will get great results, but the overall point is that there isn't a direct correlation between user growth and revenue growth.

Ah!, you say, but there are other ways for Facebook to make money (off the top of my head):

a) Premium celebrity pages (pay Facebook for a prominent page to get fans)

b) Somehow charge for user accounts, maybe for premium features

c) Selling user data to third parties

d) Zynga etc. profit sharing

e) Others

Maybe they could make some revenue from premium celebrity pages, but not enough to justify a 3-figure P/E, IMO. Charging for premium features would be highly controversial, if they did this it would be a sign of desperation and a complete departure from where they began. They probably will do some form of c at some stage (don't worry, your data is completely anonymised!) but users would probably abandon ship to competitors in droves if they did. They will continue to make money from social gaming, but it's fickle and short-lived, plus Zynga is trying to wean themselves off Facebook to grow their own revenue.

Overall I think they will continue to make billions from ad impressions and social gaming profit sharing, but nowhere near enough to justify a $100bn valuation IMHO. If they bow to Wall Street pressure and really try to squeeze their userbase data for every dime (you could call this 'doing a MySpace', i.e. shooting themselves in the foot), people will leave in droves to the next social hotspot. So it will be 'interesting' to see how they will justify the lofty valuation over the coming years.

[1] http://www.google.com/finance?q=NASDAQ%3AGOOG

FaceBook is only worth 100b on paper. It's not worth close to that. The reason this is absolutely a bubble is because you have one paper tiger buying another paper tiger with virtual paper.

This is no different than the real estate cycle in L.A. or South Florida a few years ago, when people would buy and sell condos based on market potential multiple times before the condo was even finished. It all works until someone down the line tries to cash in. It will work for FaceBook and Goldman Sachs, but a whole lot of consumer investors are going to get AOL'd in the long run.

real estate was highly leveraged borrowing that took national household debt and repayment figures to new records. Facebook stock is being bought by institutions and funds, and those numbers still don't come close to 98/99 records despite online revenue being an order of magnitude larger today than what it was then

And it helps to ignite bubble mania for the Facebook IPO. I wonder how much the added hype will boost the issue price -- it could help to discount the $1 billion FB paid.

When Goog bought YouTube it was a mess of content. There was litigation everywhere and no advertisers wanted their products associated with it.

But Google saw the potential in the usage stats. The YouTube search bar was the second most used search bar after theirs.

Similarly Facebook see the social engagement stats of Instagram being similar to their own.

I remember people saying the same thing about Youtube and that Google will not be able to profit off of it's purchase.

Facebook currently has very limited editing for their pictures. By acquiring a well-known and talented company, Facebook can roll this into their current offerings. I would be very skeptical that this was a user-driven move. I can't imagine a large percentage of Instagram users who are not also Facebook users, even if people posted a lot of Instagrams to Twitter.

I don't think Facebook would spend $1B for image editing. Image editing has well known and documented solutions.

I think they bought a younger demographic. When I was young I didn't want to hang out with my parents and their friends.

its not about new users. it is about engaging their existing users on a new platform - mobile. Pretty sure instagram mobile crushes facebook mobile in engagement

one, instagram has brilliant team which also include creative people and not only tech. two, very high yet active user base. three, which is purely on business value - the cumulative time spent in the mobile app of 30 million active instagram users, when you add up, will give more revenue in facebook ad in the following years. i would say, facebook played safe here in trying to regain the usage time.

In other words: get ready for ads in your Instagram feed? ;-)

> This is very reminiscent of Google/YouTube circa 2006.

In that it was a startup acquired by a big company? Yep.

> When Google bought YT it was a small team of people and a pretty nascent product that people really loved, and the usage numbers were out of control.

Like most startup acquisitions, the team size is relatively small and there is significant traction in the market with headroom to mature their footprint.

> They left the product mostly untouched and let it grow on its own. Though there was major criticism at the time, it is one of the best tech acquisitions of the past decade.

This is not going to be one of the best tech acquisitions of the next decade. YouTube helped to propel Google into content. It also helped to commoditise web video in a massive way: reminiscent of the way which Google commoditised search (YouTube is probably just short of being a byword for online video at this point).

Instagram is a photo service in a sea of other photo services. Photography has been around on the web in meaningful ways for a long time. Flickr lost out to Facebook in the community stakes, and Instagram is doing great in whatever-the-fuck market it's in (the share-to-my-twitter-followers market?), but this is not Google acquiring YouTube.

Bookmark this comment. See you in 2022.

Instagram is a photo service in a sea of other photo services.

You're mischaracterizing Instagram. It's not "a photo service," it's the photo service. 30M iOS users plus 1M new Android users in 12 hours.[0]

Instagram is the main mobile photo app. With this purchase, Facebook strengthens their mobile position the way Google strengthened their content position with YT. The acquisitions are very similar.

(edited for a stronger point)


It isn't the photo service: Facebook. Flickr. Picasa. Imageshack. Twitpic. Imgur... To name a few.

Instagram doesn't have more users than Facebook. Hell, it doesn't even have more users than Flickr (51m) or Photobucket (50m).

Instagram is a small part of the web photo ecosystem.

It's a very peculiar play by Facebook, and not at all comparable to Google & YouTube other than the fact that Google acquired YouTube, and Facebook acquired Instagram. Instagram represents a diversification of Facebook's offering, and one which says "it's cheaper for us to spend $1bn acquiring Instagram than it is to make a compelling mobile photo app to usurp them".

I think he's talking about the mobile space specifically..

And to go further: I have a Flickr account, I have some Picasa galleries.. I rarely visit those sites except to upload a batch and then go elsewhere.

I use Instagram 5-10 times daily when in transit, on lunch, while watching TV, etc...

sbarre has it right. You missed this part: "Instagram is the main mobile photo app."

Damn reading comprehension. ;)

To go a step further, consider: Flickr is available on every device (computer or phone) with an internet connection . Instagram was iOS-exclusive until a week or two ago, and yet it managed to reach sixty percent of Flickr's user base size. That's astounding.

I was addressing the part where it said "it's the photo app". It isn't "the" photo app. You can make the case that it's the most widely used mobile photo app after Facebook. But that != $1bn valuation or YouTube-like status.

It's probably too late, but if Facebook would like to hedge their bets by seeing if they could make an Instagram workalike & user traction for much much less than $1B -- for say, oh, a mere $1M up front and $9M upon delivery -- I'd be willing to take a shot. One man team. Give me say 2 months absolute tops. I deliver the mobile app, website, backend. Facebook brings the massive user base. Oh wait, again, they could already do this, without needing me. Or Instagram. So, put me down as another guy who thinks it's a misspend on Facebook's part, partly due to perhaps being drunk on their own "funny money" valuations.

But then Instagram would still exist as an alternative social network for sharing photo's, outside of Facebook's control.

The assertion is that, for a billion dollars, Facebook should be able to create a significantly better app and market it better (or 'at all') than Instagram do.

Facebook have got 721m users and all the data they need to constitute incredible market research. In twelve months if Facebook couldn't build an app which is competitive to Instagram, and get it installed with ~5.5% of their user-base, I'd be really fucking worried.

Also consider this: Twitter add "Photos" to their filtering options adjacent to "Connect" and "Discover". So you can just click a Photo button and see all your connections' photographs in a stream. Oops, they just went halfway towards creating most people's Instagram experience.

you nailed it

Thanks. Incidentally your startup is in a spookily similar field to mine. Email me? mistergeorgespencer at google's email solution dot com.

I suspect the main photo app is the default android camera, by a long long long looooooong distance.

Two serious, non-cheeky questions:

--does Android's Camera app have social sharing features?

--does it provide some kind of cloud-based sharing support?

I see the above, plus Instagram's 30M+ user base, as their main benefits.

Because of Android's intent system you can share it over literally any social vector installed on the phone.

Here's a screen shot of the sharing options shared via Dropbox.


It's a little faded because the screen shot button combo includes the back button on my phone... not the greatest design.

i hate using the metric of downloads or users.. the most important metric that we don't get from mobile app companies is daily active users. Filters on android have become commodity, and I imagine a lot of users just installed to try and see what the hype is about.

Does the 1m in one hour really mean much? We've heard about the iPhone app, not it was available for Android, so we checked it out (except not everybody did, I did not). There won't be 1m new users per hour, it was just the first hour.

That statistic represents pent-up demand. It's now available on the mobile OS with the largest share of the smartphone market.

You don't expect Instagram to double its user base within a year? Maybe even more?

It was also only really possible given the resources Google had to throw at YT. It was years before YT was profitable, and even then it was only with the introduction of intrusive ads that that was possible. A company without Google's deep pockets would likely have had a hard time giving YT the chance to grow organically, without trying to butt in and make it profitable.

Maybe YouTube could have done it on their own too, but a big reason why Google was able to keep YT afloat was its widespread peering agreements. So even though it bled cash for years, it didn't bleed near as much cash as it could have because they paid very little for their actual bandwidth.

This feels a lot more like the 1999 "eyeballs" landgrab. There's no unique technology behind Instagram.

Being popular != being valuable.

Totally agree, unless the purchase is cheaper than gaining popularity, but that seems far fetched in this particular case.

I say follow the money. Things that don't make any sense on the surface often have simple motivations. Someone (perhaps someone affiliated with the Instagram funding round that closed days ago) needed an infusion of cash. Facebook has more cash than they know what to do with.

Have you completely forgotten about Android? Do those millions count for nothing?

To compare it with YouTube is a massive overstatement. YouTube still has ~65% market share. InstaGram didn't even have an app for Android until a week back. How is that even remotely close to YT's domination of the video space?

Google also missed buying Flickr back then. I think Instagram would've been a smart buy for them, too, at least from a social network point of view. I don't want Facebook to gobble up all rising social networks. Maybe Google was looking to buy Pinterest instead?

So, I found something very interesting in Mark Zuckerberg's post about acquiring Instagram:

> we're committed to building and growing Instagram independently. Millions of people around the world love the Instagram app and the brand associated with it, and our goal is to help spread this app and brand to even more people.

Facebook has always integrated whatever it purchased (that I know of) very tightly into the core product, or just done an acqui-hire. Instead, they've taken what is arguably the best way to share photos and decided to keep it as a product that exists on its own.

This is a major strategy change for Facebook and speaks to something I have suspected for some time - they now understand that in order to continue spurring growth, they cannot just acquire and roll in every product. As the ecosystem starts to hit a long-term maturity cycle, other products that fulfill particular functions better will be key to maintaining dominance over the market as a whole.

Let's face it: G+ cannot topple Facebook (though it probably wasn't intended to anyway), Twitter is fairly specialized and Pinterest has come up with a new way to share that fits neatly with the other two. Instagram makes immense logic as a purchase for Facebook as they'll control one of the most important ways people share photos outside their product, neatly roping everyone that uses it right into the FB circle without feeling forced to do so.

Zuckerberg's statement that Facebook will keep Instagram alive and kicking seems likely to prove honest but disingenuous.

Instagram, in providing a photo sharing experience (at least) on par with Facebook's, spanning multiple "social platforms", facilitates user migration across these platforms. In the current context, any user migration between social platforms would (almost) inevitably dilute Facebook's share of user-time.

Thus, it seems reasonable for Facebook to acquire this possible avenue of departure and generally maintain its current state (i.e. Zuckerberg's statement is honest) while guiding future evolution of Instagram's product to subtly guide the flow of users along "Instagram Avenue" towards Facebook, rather than in its current unbiased direction (i.e. Zuckerberg's statement is disingenuous).

Though useful from a business perspective, this sort of defensive acquisition is discouraging to me. I would prefer to see the evolution of "social" in general towards an open protocol for maintaining the actual user<->user graph structure and piping of information along it, with a loose confederation of services such as Instagram providing the content hosting/delivery. This would decentralize control of people's social graphs, with control being restricted to subsets of the shared content and its flow over the graph, rather than the actual graph structure itself. I.e. market-driven services such as Instagram would compete to control portions of the infrastructure implementing this new construction, which one might call the "world wide (social) web".

TLDR: Facebook's purchase of Instagram permits them to simultaneously reduce the instantaneous rate of user migration across social platforms while preventing the emergence of a competitive open social platform/protocol, the evolution of which would be greatly facilitated by the prior existence of third-party social content infrastructure such as Instagram, which reduce the size of the "chicken and egg" problem confronting any attempt at an open platform.

They sort of did it with Beluga- it became "Facebook Messenger" but was never integrated into the main app. At the time I was confused as to why they'd do that, but if you think of it as a replacement for the stock "Messages" app, and Instagram for "Camera" then it all starts to come together.

Good point - though they did eliminate the brand with Beluga, and they probably won't with Instagram. That could change though.

Besides messaging and photos, I'm thinking that few things are left as halo products around Facebook. There's no reason for a "games" app - to me, at least - but there might be logic in acquiring something like Turntable.fm for music.

I like this thread of reasoning. Also ties into the whole "Facebook" phone. If they were to build one, it's possible it would be android based so maybe that's why they were just waiting for the android app. I was thinking Spotify for the music given all the ties to FB, but may be too big now.

Almost sounds like you're describing a new FacebookOS!

Very bold + smart move on Facebook's part. Google should've taken similar step when it approached Path. Am a Google fan, but what's unfortunate is that social would be totally different by the time it successfully builds G+ to look like Facebook. This is should be the time to invite folks at Path/Pinterest to the negotiation table, if anything Wallstreet won't think it's stupid...Facebook just did it.

According to WSJ price is $1B

source: http://allthingsd.com/20120409/breaking-facebook-to-acquire-...

Edit: Direct Source: http://newsroom.fb.com/Announcements/Facebook-to-Acquire-Ins...

The total consideration for San Francisco-based Instagram is approximately $1 billion in a combination of cash and shares of Facebook. The transaction, which is subject to customary closing conditions, is expected to close later this quarter.

Quite a jump from the $500 million valuation they were shooting for last week[1].


I think the mere fact that they just raised $50M @ $500M valuation is the reason that this price is so high.

Those investors in that round had to at least double their money...if the price was indeed $1B, that's all they did. Just 2X. Although, the argument can be made that a 2X return in 1 - 2 months isn't bad...but then again, VC funds don't have a 2 month life, so over the long-term value (i.e. 10 years most-times) of that fund I am not sure how beneficial that is.

Although, I guess they can't be too pissed because it must feel good to be able to at least return something to their LPs in such a short time frame.

And people say we're not in another bubble.

People through comments saying things like "well, VCs needed to double their investment - this lets them do it in a few months"

Wish I lived in a world where I should have expectations of a several hundred percent ROI on investments.

You are just seeing the good cases here. A 10X return on any one investment pays for all the bad investments. If I remember correctly, the return that Sequoia got on their YouTube investment paid for the entire portfolio many times over.

But more importantly than that, I think it was one of a very few that were good in that fund. I believe that particular fund was particularly bad because it contained remnants of the dot com bust - so only 1 - 3 of their investments in that fund were profitable, and only 1 was enough to pay for the entire fund.

I am not remembering EXACTLY so my numbers may be a bit off...but you can just imagine how annoying it must have been to be a partner in a fund and be telling your LPs that you have essentially lost all their money - and thinking about this for the entire 10 year life of that fund.

Just for at the last minute, almost literally, all of that changes.

People don't think about it, but it's not easy to be a VC.

yeah, but they paid $1 BILLION dollar for a company with NO business model.

This buy was just another way for connected Silicon players to cash out on the facebook IPO, since the IPO window for web 2.0 is closed.

Google bought YouTube for $1.65B when YouTube didn't have business model. It was critiqued a lot because of this, but it established Google as a dominant player in video space and it's ripest fruits might be seen in coming years when media consumption moves more and more to mobile.

I grant that $1B sounds a lot for Instagram and it is harder to see similar commercial value in photos than in videos.

My personal take is that in addition to friend connections, already posted photos could be the strongest lock-in for users that Facebook has against future competitors.

Trust me, Youtube is very profitable. Major multi-national brands have to pay $100,000's in Google Adword purchases to have their own branded channel. And if you want to change the look of your channel? Pony up another $100K.

YouTube just recently turned profitable in the last two years. It was hugely unprofitable with an unproven business model at the scale at which it was bought.

It is very profitable now, however it wasn't when the purchase was made -- therefore it was a wise decision.

YouTube has a business model now, but is it a profitable business unit? (I'm not trolling; this is a serious question about business models.)

yeah, and Yahoo bought Flickr for hundreds of millions. And Flickr never became a profit center for yahoo. Now, Yahoo is laying off thousands of workers, and is close to dead poool, because of all its malinvestment in web1.5 (flicker, geocities, delicious, etc).

Video has a higher value proposition than photos. Look @ how hard flickr has struggled turning photos into a sustainable business model.

I'm comparing apples to apples. You're comparing apples to oranges.

Flickr was in the tens of millions, on the order of $30 million. That was the blog buzz around the price, anyway.

Gonze! How are you my man?!

You could have said the same about Yahoo acquiring Facebook itself for $1 billion, if that deal had happened. It's clear now who would have got the better deal there.

Certainly that doesn't mean every large acquisition is justified (e.g. Bebo) but it also means you can't just automatically apply the "company X has no clear business model today and so shouldn't have been bought for Y" argument to every such acquisition either.

I'm not convinced Yahoo buying Facebook for $1 billion would have been a good deal for Yahoo. Yahoo never would have been able to make Facebook nearly as successful as it is today. I have my doubts Facebook would be worth even a $1 billion today. Yahoo has an awful track record of making the worst out of their acquisitions and I don't see how this would have been any different.

I am actually wondering if the value was too low. They are crossing the chasm so to speak and moving toward mainstream very quickly. I don't know where they would have ended up, but if they could have negotiated an upround with the founders and VCs taking some cash off the table it may have been a better move.

I fully understand that if I had a $1B offer for a company that I would literally be sick turning them down, but the potential was there for something really big. If I could keep going with $10m in the bank, I would like to think I would try.

They have a business model: filters that cost money.

You need some serious perspective, they just got 2x return in a few months. They can, I don't know, re-invest the money perhaps?

And you're cherry picking out one of many Sequoia funds (and still a successful one at that) to point at to call VC life hard? A dot-com period fund as well?

How many other hit funds have they had?

Sequoia estimates that 19% of the NASDAQ’s value is made up of firms they have funded.

In many (pretty much all) funds, you can't re-invest capital earned from the fund.

I recommend checking out the book 'Venture Deals' by Brad Feld and Jason Mendelson. They explain the various structures of funds, why they're structured that way, and how it influences the decisions the investors make.

There was an article on HN about how most funds are structured so you can't, you know, re-invest the money from an exit.

It doesn't work that way -- no, they can't reinvest the funds.

I would like someone to sit me down, and explain the economics of why accept a buyout immediately after raising. And NOT the part of accepting $1 Billon. But why they closed a round with a buyout just around the corner.

For 2 main reasons that I can think of:

a) You don't know if the acquisition will actually happen. Therefore if it doesn't, you aren't left with nothing.

b) It gives you a stronger bargaining chip to increase the price of the acquisition because you literally have a strong alternative. Instagram could tell FB to screw off, they are already getting $50M.

I wonder if the investors (Sequoia, Greylock) knew of the pending acquisition offer from FaceBook when they put forth the 50M investment? If they did, that was the easiest investment ever.

I believe I read that Marc Andreessen is an investor (and board member?) in both companies. Seems painfully unlikely they did not know. And why wouldn't Instagram TELL them?

They may have brokered the deal, and at least gave credibility to the investment to make it easier for Facebook to pay the price. Beautiful result for the portfolio - we are in a bubble and flipping this so quickly means that they have $ return in the bank way before the more speculative investments.

If they did, was it legal?

It might actually be illegal not to disclose that.


Raising a round SETS the pre-money and post-money valuations of a company. I've known companies that have taken a measly $8M round when they are already independently profitable.

It's basically a bargaining chip. Let's look at two different scenarios:

1. Your last round of financing was two years ago and you raised $2M at a post-money valuation of $8M. Two years pass and you're hot, what is you company worth? Look at some comparables (which the acquirer will try and rip apart). Do a multiple of your revenue (which the acquirer will try and rip apart).

2. Now you're hot and you think you might be acquired (or maybe not!), you raise $5M at a $50M post-money valuation. Now when you sit down at the bargaining table, you can say "Well that VC over there thinks we're worth $50M, what do you think we're worth?"

In option 2, you've got a lot more bargaining power.

100% return in 3 months (it won't close to the end of the quarter) is an annualized 400% return. If you're a VC you took $50M out of a fund put back $100M, now you can make 2 bets at $50M when before you only had one. I don't see any way that this isn't a great deal for the VCs.

That being said, this wasn't part of the S-1 and Facebook really has to tell potential investors how this will affect the financials, so presumably there is a revised prospectus or perhaps S-1 in the works.

Well...if I am not mistaken, the way VC investing works is once an investment return is made - they have to distribute it back to the LPs immediately. They can't just "re-invest it" into other companies.

Unless those economics have changed, but I don't think they have.

It is in that light why I say, it seems a bit precarious. Essentially what would have happened is, these VCs would have contacted their limited partners and said, we have an investment we want to make - send us the money now (this is after the limited partners already committed to giving them that money). The LPs then wire the VC fund the money. The VCs then wire that money to Instagram.

3 months later, Instagram wires the money (assuming it was all cash, which we know it wasn't) back to those investors, which then have to wire the money back to their LPs. So technically, it doesn't REALLY help their portfolio as much as if they got a 10X return in a few years because the money was put to work for a shorter period of time.

Although, if you are 'annualizing' the return properly and assuming a 33% return each month, then the yearly return is actually 29X (compounded), but we digress.

When VCs make money they generally don't reinvest it, which is why they always look for 10x in the long term rather than 2x in the (very) short term.

Like everyone else already said, VCs can't reinvest so they dont really want 2x returns.

Anyways, there's a excellent blog post that explains this very clearly. It is written for founders to understand the VC's perspective when investing. Does anyone know what I"m talking about?

Great article! Also related: Brad Feld's book "Venture Deals" goes into detail on a lot of what Dan Shapiro mentions in this article.

Wow that is an awesome article, so one wonders if a fund is nearing its 10 year expiration, can they spend the 'reserve' on a fast exit like this?

Thank you thank you thank you!

I been looking for this article for the last few months now.

At the standard 2 and 20 it's a really great deal. Assuming this was a one time sort of fund from the LPs as other posters have suggested. The VCs are looking at putting $12 million in their bank accounts in 2 months.

Usually, that's not how it works (VC's don't reinvest) but I will have to admit I'm fascinated by the story behind a large round so quickly followed by an acquisition. Too bad we'll likely not hear it.

I haven't been able to find anything anywhere that says they actually closed that round - merely that they were looking to raise money at that valuation.

EDIT: Open mouth, insert foot: http://techcrunch.com/2012/04/09/right-before-acquisition-in...

Are you joking? You don't think a 100% gain is good for a 1-2 month timeframe? The most successful hedge funds in the world have money thrown at them if they can average 50% gains over the course of a year. And that is an outstanding year!

I realize the economics of hedge funds and VC funds are different in that VC's take a shotgun approach and hope that one out of ten investments makes up for all the losers, but on any single investment a 2x return is outstanding. On the surface it looks like the founders got screwed nicely on this one.

> if they can average 50% gains over the course of a year

That's the point, this isn't what happened. Given the choice between 2x return in 2 months or 10x return in 120 months, there's no contest at all. That initial investment that returned 2x is now out of play for the life of the fund. If the fund's life is 10 years, the return is 1.1x, not 2x.

Okay, you go ahead and bet on the companies that will pay you a 10x return in ten years and I'll take the 2x return in two months. Will Instagram even exist in 10 years? Who knows? I wouldn't bet on it.

BTW, you're absolutely right. The 2x return extrapolates to a return of trillions of dollars over ten years, so there really is no contest at all.

It doesn't matter if you run a hedge fund, a VC fund, or a trust fund. A 2x return is a 2x return, and anybody would take it any day. Anybody who wouldn't has no business working in finance. Just because you assign a ten-year time frame to your portfolio does not diminish the return on that investment, so the return on your $50mm is 2x, not 1.1x.

If you guide your investment strategy based only upon what you hope will happen in the best-case scenario and look down upon investments that double your investment, you're making a mistake. The only reason they need a 10x return on their winners is because at least nine other bets are going to lose. Any win adds value to the fund. As a fund manager would you rather the $50 million have been plowed into a business that returned 0% which is what you expect to have happen ~90% of the time? Do you understand why criticizing this investment makes no sense? You're comparing a great investment to the few investments that turn out to be astronomically fantastic instead of the vast majority that lose money.

> It doesn't matter if you run a hedge fund, a VC fund, or a trust fund. A 2x return is a 2x return, and anybody would take it any day. Anybody who wouldn't has no business working in finance. Just because you assign a ten-year time frame to your portfolio does not diminish the return on that investment, so the return on your $50mm is 2x, not 1.1x.

This is your key misunderstanding. When the fund starts, you lock up the money for a specific amount of time (say, 10 years), and once the money's been in, it can't go in a second time. So if you're near the beginning or middle of the fund, and the fund was < $500MM or so you probably wouldn't take 2x on $50MM today, because that $50M will be out of play for the next (say) 9 years.

In other words, it does diminish the return on that investment, because that $50MM is now out of play. Every dollar gets one shot of multiplying, and when it's done it's done, as far as the fund is concerned.

If the fund is near the end of its life and for some odd reason they still have $50MM sitting in it, then yeah, it'd be a great move.

Also, if every dollar has one chance to multiply and you take one tenth of the fund and immediately double it at the beginning of its lifetime, that is an outstanding outcome. Just because you can't reinvest the money in that fund does not mean it is lost, it is simply paid out to investors right away.

Anybody who has taken a finance course knows the simple principle that a dollar today is worth more than a dollar tomorrow. It is NEVER better to make a return of equal percentage later in a fund than early. Instead of having $50 million to invest in the original fund in the same companies as before, you now have $100 million to invest in the same companies as before. The fallacy in your logic is that you are hung up on the required return for that single fund.

The only way what you are saying is valid is if by investing that $50 million in Instagram, they missed out on the opportunity to invest in another company that at some point in the future would have returned more. In a window of about two months, I highly doubt that's the case. Again, once you have doubled your money and gotten it back, you can invest it anywhere you like, including the same companies you may have before. But now you have twice as much money. There is nothing magical about that fund that makes its investments more special than another.

> Again, once you have doubled your money and gotten it back, you can invest it anywhere you like, including the same companies you may have before. But now you have twice as much money.

Again, that's exactly wrong. As far as the fund is concerned, that money's gone.

Let me help you understand with this link: http://www.danshapiro.com/blog/2010/08/vc-insanity-economics...

Pay special attention to the section entitled, "They don’t appear to be particularly interested in making large amounts of money."

Exactly. The money is gone "as far as the fund is concerned." But that money is no more gone than it is when I sell stock and convert it to cash. A fund not recognizing money does not mean that that money ceases to exist.

I fully understand that. What I am explaining to you is that the idea of a VC fund is to create a return by investing money in a portfolio of companies which overall, should create a positive return. There is absolutely no way of knowing going in what the fund will return. If I figure that out of ten investments one will create a positive return great enough to pay for nine others, that does not mean that I am hoping or expecting that each of the ten will return me 10x. Keep in mind that those nine losers are completely independent of each other. If five win and five lose, all the better. If five win and three break even and two lose, that's even better.

If I invest $100 into 10 different stocks, and I figure that nine of the ten are going to be losses, then I hope that one of the ten will return me at least $1000, or 10x my original investment. That's very different than saying that any of the ten that returns me less than 10x is a disappointment. On the contrary, if one happens to return me 10x over the lifetime of my portfolio and another returns me 2x, then I am even better off than I anticipated.

Except that because they'll get paid x% in FB stock, the life of this investment is now extended until they choose to sell the FB stock, which means the return could go up (or down!).

Don't you think that maybe Facebook acquired Instagram because of the latest round?

Angel / Series A investors are shooting for 10X. VCs hope that investments in more mature companies with users, revenue, etc. get 2-3X. I don't think any of the VCs that invested last week are bummed on 2X in 5 days.

Wait a sec - if the investors put in $50M and the sale price was $1B, isn't that a 20x return in 2 months? Or am I doing the math wrong?

For $50M the investors didn't buy 100% of the company. They bought something around 10% (assuming the valuation was $500M)

The acquisition was in stock and cash. So the VCs that put up the $50M may have just gotten $100M in pre-IPO Facebook stock, which may well dramatically increase their return post IPO.

This has to be mostly stock...how much cash does FB even have? Enough to casually hand out hundreds of millions?

Ahhh....good point. That does change the formula a bit, but even still...what's the likely 1 year return on pre-IPO FB stock? 3X if so much? I doubt it.

Anyway, it's better than 2X, so I guess they can't be pissed.

But, quite possibly, it could be .5X, or .25X... Current FB valuation is somewhere around 25X revenue ...

P/E is around 100.

Honestly, in the tech industry, a 25 P/E ratio is yawned at.

Wonder if there was a bidding war between FB and Google that caused it to double off of that.

I think something like that had to have happened for the valuation to get so high. Apple may have been in the hunt as well, given their propensity for acquiring popular iOS apps and rolling the functionality into vanilla iOS.

The valuation wasn't all that high. It was just twice that of the last round. In order for the investors that just came in to get any sufficient return on their investment, they had to at least double their money. Ignore, for a second, that it was just 1 month (or 1 night as Techcrunch suggests) - it doesn't matter.

The purchase price is usually determined based on the latest round of financing.

The $500m-valuation round happened so close to the buyout, though, that it's quite possible the investors in that round knew of pending offers, which then increased the valuation. So if that round's valuation itself then increased the buyout's valuation, that's a neat bit of circularity.

It's interesting that alot of people are concerned with FB vs Google. My initial thought when hearing about this deal was that FB could be more worried about Twitter. In my personal experience, many people will share instagram photos on twitter rather than Facebook as it comes across as less "spammy" to share photos frequently. Certainly, IMO, the subscribe feature that FB introduced last year was a reaction to the celebrity cult on Twitter. Granted, Mark claims that the acquisition of instagram will not affect the ability to share to other social networks, but I'm sure they will try to make FB the preferred platform to post photos as a daily update. It will be interesting to see if Twitter suffers a drop in photo sharing as a result.

I don't know, but I wouldn't jump to that conclusion. The Instagram team was still growing its user base by leaps and bounds. I would guess they're in no hurry to sell. FB's "competition" for the deal could've just been Instagram's continued organic growth.

Obligatory Google+ momentum check:


"Mr. Silbermann, Larry Page is on line 1"

It's because they doubled their revenue since last week.

Oh, that's right. Revenue doesn't matter. "This time, it's different!"

I have no words. That is incredible.

congratulations guys!

What are the odds that that figure is actually in real dollars?

Zero - it's being reported as a partial stock deal, which (speculation coming...) probably has some sort of performance based component (the word "earn-out" hardly seems appropriate here.)

Some of you might find this useful:


When I read the headline I thought two things: a) Wow, the Instagram guys deserve it, congrats to them. b) I need to delete my account.

The second point is because I have been actively trying to avoid giving fb more data than absolutely necessary. No ill will towards Instagram.

Same reaction here. Pretty sad to delete it, actually. The other day I was using Instagram as an example of a social app with a friend list that WASN'T Facebook. sigh

Edit: spelling.

Funny, I had a similar reaction. I was really late to the Instagram party but the biggest thing I liked about it was that it was an alternative way to keep a circle of friends. For whatever reason, I quickly re-connected with some quality people that I had lost track of over the years, but was happy to find on Instagram. Fittingly, a bunch of us had actually taken photo classes together over a decade ago.

This was EXACTLY my feelings. I sat down after lunch, read the headline, opened up my browser, changed my user profile information and deactivated my account. Good luck Instagram, but I can't stand Zuckerborg.

>I need to delete my account //

Surely it's already too late. They bought your data.

Why do we allow companies to sell personal data on as part of the company? Should this be legislated against?

What's the alternative?

Not sure but a contact saying "this service is now owned by $company, do you wish to allow your data to be retained". Similar offers could be required whenever contractual terms are altered, the default being to continue service.

That would mean that if a malevolent owner decided to change T&C and sell all your private data youd have a legal recourse with which to stop them.

Personally I think that Opera's browser based server offers a way forward whereby a user would have all their data local and a FB like service would operate as a hub/link - like how bt services are pointers to distributed data.

> if a malevolent owner decided to change T&C

Why not mandate that contact in case of any change of T&C? Owners of any level of malevolence can change those, not just after a sale.


Yes. I JUST deleted (deactivated/request removal) my FaceBook account over the weekend.

Good for you.

It makes me wonder how many people are going to have that reaction. I'm an Android owner and I still haven't checked out Instagram, and now I'm not sure I want to.

You can still post to Instagram without sharing the photo on Facebook. So this "paranoia" - if I may call it that - is only because Facebook now has acces to all of Instagrams information? And Facebook will abuse this position why, exactly?

The current trend with buyouts seems to be eventual integration. Google recently did this with their privacy policy, and it was received with mixed feelings. I see no reason to expect Facebook's acquisition of Instagram not to change how the latter operates: it must become profitable to FB somehow (beyond talent), and data is the most straightforward way. The two blog posts announcing the acquisition aren't legally binding with respect to the future of the products, and nobody should be surprised if a 180º shift happens in a few months. Facebook is in the business of monetizing user data after all.

Exactly. Imagine one day just browsing Facebook casually and enjoying the free services they provide when all of sudden you see an ad on the side that is about an ukulele star throwing a little concert in your home town. Except, you only ever mentioned learning ukulele on Instagram!

I can barely endure the thought.

It's funny, just a few hours ago I was going through my apps looking for rarely used ones to delete. I was on the fence about Instagram; I'm not using it much but I left it there "just in case". Well, seems this acquisition solved the dilemma.


Anyone got some bad news about their startup that they need to release? Get that press release out, stat.

Some quick back-of-the-envelope math for how much the co-founders walked away with.

Assuming the first round of $500K was @ $2.5M valuation, giving those investors 20%. So the founders are left with 80%.

Further assume the 2nd round of $7M @ $20M valuation, giving those investors 35%. So the founders are left with 45%.

Further assume the 3rd round of $40M @ $500M valuation, giving those investors 8%. So the founders are left with 37%.

Also assume that the employee stock options pool is worth 10% of equity. Founders left with 27%.

There are two founders, according to Crunchbase [1], so assuming a 50% split for each founder, each founder has 13.5%.

At $1B, each founder walks away with a cool $135M in cash + Facebook stock (which is likely to appreciate significantly in a few months) - which is likely another reason they chose to go with FB as opposed to Google.

Not bad for 2 years worth of work.

[1] - http://www.crunchbase.com/company/instagram

I'm not sure that your numbers account for share dilution. Let's assume the employee stock pool is 10% before any funding is raised so the founders start with 90% and the employees 10%. Assuming your numbers above are correct, the founders are left with 72% after the first round of investment (500k at 2.5m = 20%) and the employees are left with 8% (think 72 + 8 + 20 = 100). The second round of investment takes 35% of the company, leaving the founders with 46.8%, employees with 5.2%, first investors with 13% and the new investors with 35% (46.8 + 5.2 + 13 + 35 = 100). The third round of investment takes 8% of the company leaving the founders with 43.056%, the employees with 4.784%, the first investors with 11.96%, the second investors with 32.2 and the new investors with 8% (43.056 + 4.784 + 11.96 + 32.2 = 100).

If my math is correct, the founders may have ended up with more like $430,560,000 between them ($215,280,000 each assuming 50/50).

You may be correct.

I was just doing some rough calculations to show an approximate 'low-figure' of their take.

It is very possible and likely that they took away much more (because all of the variables could have changed).

For instance, that first $500K round could have been convertible debt which would have converted in the $20M round. If that's the case, then those investors ended up with 2.5% instead of 20%. That drastically changes the math and gives the founders more equity and a better outcome.

According to wired, Kevin Systrom owned 40%, while mike owned 10%. http://www.wired.com/epicenter/2012/04/facebook-buys-instagr...

Those figures are from 2011 though. I assume they would have gotten diluted from the final round last week.

You are not accounting for liquidation preference correctly. When someone gets a 1x liquidation preference first they get their money back, then they get an equal portion to what is left. So in the case of the 3rd round, first they got their $40M back, but they retained 8% of the pool. Same with the 7M etc. Call it $50M off the billion right off the bat, leaving 950 million. Doesn't really dent the number (reduction of 5% for the founders, so they each walk away with $128M, but that is still 7 million less). Also, this assumes no advisors got shares or board members got shares and that really early hires got no shares outside of the ESOP, which is unlikely). I would guess they probably each walked away with $100M after everything was said and done.

Aren't you describing participating preferred stock? That's not a universal deal term, and Instagram didn't seem to have much trouble raising.

Yes, what they are describing is participating preferred, not liquidation preference.

According to VentureBeat, the CEO made off with $400M. http://venturebeat.com/2012/04/09/instagram-ceo-just-made-40...

Why do you think the FB stock is likely to appreciate significantly in a few months? If you really believe this, I assume you've just invested a significant chunk of your net worth into FB stocks?

Well.....FB is the poster-child of tech exuberance right now. Everybody uses Facebook. Many of those users will likely want to buy the stock - not for any sophisticated investment thesis. But because they want to own what they use.

That will likely push up demand for the stock in the short-term, thereby the price.

Aside from that, we have never seen a service have 800M users and still growing at the rate that FB is growing and have the stickiness that it has. So there is no telling how big it can get - which is why the valuation is so high.

There is no doubt that over the long term, FB will figure out a way to print money. It's just a matter of time.

Sorry if I came off crass, my point is that people throw 'stock tips' like this around without care and it's generally bad advice and you have to understand some people reading it may act on it.

Someone could read what you wrote and buy stock when your actual reasoning is simply because you think the public are going to get excited and buy the Facebook stock because they use it, along with the big assumptions that a) this wont already be reflected in the price and that b) these people who are buying the stock will have a meaningful impact on a $100b cap company with a 'significant' increase in price.

These are not the best assumptions and reasons to state that it's highly likely that FB stock will significantly increase. Every time I hear someone say something like this I have to ask how much of their own wealth they've stuck out on the line because more often than not it's nothing.

You didn't come off crass...not to me anyway.

I wasn't giving a stock tip. Just stating what I see as the most obvious conclusion.

That being said, if I had a net worth of any significant value that wasn't illiquid, I would probably buy FB stock on IPO and hold it for a few years. I can't see why you wouldn't want to.

They have not really monetized, they have 800M+ users and they are already doing $1B/profit per year. Imagine when they really figure out how to make money.

One good reason not to is that a 100/1 PE ratio is very high if your assuming $1b profit and a $100b cap. In comparison Google has a P/E of 20, and Microsoft 11.

Those reasons you have given are basically a gamble on the assumptions that:

- Facebook can earn a lot more money (5x - 20x more)

- Facebook hasn't done it yet because they haven't figured it out

- They will figure it out within 3 years (your exit window)

It does seem like an overly simplified argument. I don't think monetising Facebook to the levels you think possible in a 3 year window is as easy as people think, and it might not actually be possible.

You're also ignoring the possibility that this gamble isn't already priced into the stock.

Yes, but is any of that not already priced into the stock? The folks who have been buying and selling huge chunks of FB stock for the last few years have done a lot of thinking about that sort of thing.

I understand when a startup, like Instagram acquiring eyeballs and saying: "we really don't have a business model, but when somebody will acquire us - they surely will figure this out".

But when Facebook saying "we didn't really started to monetize our 800M eyeballs, we just waiting for IPO and will figure it's later" - it's sounds silly.

They never said that. It's just their actions. They generate enough cash to sustain themselves and they can grow. They are doing it properly and taking their time.

Just like Twitter is.

You may poo poo it all day, doesn't change the fact that over the long run it works.

This seems ominous for Google, which spent $12.5bn for Motorola to stake a shaky claim in mobile and lord knows how much on G+; after this, what's left for them to do to stake a claim on social mobile? Buy Twitter? What else do people do socially with their phones?

Totally possible for Google to sink tens of billions into mobile and still wind up on the bottom of the value chain, commoditized along one axis by Facebook and utterly outmarketed by Apple (with its extraordinary profit margins and increasing domination of supply chains) on another.

Or maybe GOOG/Twitter is in the air, and Facebook is reacting defensively?

This seems ominous for Google, which spent $12.5bn for Motorola to stake a shaky claim in mobile

I was under the impression that Google paid that price (and, indeed, bought Motorola at all) for patents.

Google is doing just fine out of Android. iOS may be better marketed, but there are a hell of a lot more Android phones out there.

The game is scored in profit. Revenue and market share matters only as a means to the end of securing profits. Android has a huge market share (and, dearly bought), but even 1st & Goal doesn't matter unless you actually score.

I don't keep super close track, so maybe Apple's commanding profit share lead is eroding sharply. Last I checked, "commanding" was indeed the word for it.

Again, all I'm saying is that you can spend a lot of money for a huge footprint in the market and still find yourself at the bottom of the value chain: you can be the guys facilitating a lot of commerce for other people without taking a significant cut.

If you don't believe Google cares about that, why are they wasting their time with G+? Facebook isn't going to be a search engine. Nobody believes that. The worry is that Facebook is going to commoditize search by moving the profits it generates somewhere else.

The game is scored in profit.

I'm all for capitalism, but that statement strikes me as particularly narrow-sighted -- with due respect for tptacek (since I always find your comments insightful). Plenty of people and corporations are not purely motivated by profits. For example, kudos to GOOG for making a cheap smartphone OS available to the 3rd world.

The game is scored in total value of the ecosystem. Apple captures a higher % of iOS ecosystem value because it's the only device manufacturer. Google captures a lower % of a larger ecosystem, leaving value on the table for OEM partners. The latter is a stronger long term strategy.

No, the game is not scored in "total value of the ecosystem". The total value of the ecosystem is only relevant if you control the whole ecosystem. Google is making far less profit on mobile than Apple is. If its strategy of growing the ecosystem out and skimming less profit from it is a good one, we should see it in their bottom line. We aren't, nor do we seem to be trending that way.

Maybe someday soon Google's strategy of letting a thousand Android devices bloom will pay off. But that is still a "maybe". Apple has tens of billions of "definitely's" to counter that maybe.

Meanwhile: I think people are getting hung up on this whole Apple vs. Google point, and getting away from my real point, which is that:

(i) Google's bids for a stake in mobile have been hugely expensive and not particularly profitable,

(ii) Apple's bids for a stake in mobile have been hugely expensive and hugely profitable, and

(iii) Facebook's bids for a stake in mobile have been expensive but orders of magnitude cheaper than Google's or Apples, and could end up hugely profitable in the long term.

Facebook will end up looking pretty smart if that's what happens. They didn't even have to buy a cell phone manufacturer or write their own OS!

> 1st & Goal doesn't matter unless you actually score

Well put.

But after the first quarter would you rather be the team winning 2-0 thanks to a safety, or the team who have dominated the game and somehow are yet to get any points on the board?

I'm not saying Apple have only scored the safety, or that Google have dominated, just that we're no-where near the end of the game and given Google's game plan is a long one we can't say that it's worse, not right now - we can only predict that we think it is.

This is untrue, but often assumed.

Total iOS devices: 315M (as of 2012-03-07) Total Andriod devices: 300M (as of 2012-02-29)

http://techcrunch.com/2012/03/07/tim-cook-talks-ios-device-s... http://www.guardian.co.uk/technology/appsblog/2012/feb/29/an...

Android is selling faster, but it has yet to have a larger installed base. It will likely happen soon, but iOS had a large lead in terms of start time and the iPad is killing in the tablet market.

Obviously there are many factors which will adjust the true installed base (broken devices, devices no longer update-able, etc.).

tptacek's point was about profits, not install based.

He's saying that I'm not only right about profits, but Apple still has a slim edge on installations.

Scratch what I said. I thought his was a direct response to your comment, not untog. That changes what "this" means. I eyeballed the alignment wrong.

> Google is doing just fine out of Android.

By what metric?

> iOS may be better marketed, but there are a hell of a lot more Android phones out there.

Yes. And Google has made more money out of those fewer iOS phones than it has from the many Android phones.

Utterly outmarketed by Apple? What a curious take that is, though it is a natural statement when you're so desperate to try to drag Google into this.

Instagram is a tool that has a limited shelf-life, with a userbase that is almost certainly already on Facebook. Declaring this some sort of coup for Facebook seems weird, given that the overwhelming sentiment is that Facebook has more net worth than brains at this point.

Apple takes 75 cents out of every dollar of profit in mobile.

The second graf isn't worth responding to. I'm not as emotional about tech companies as you seem to be.

I was replying directly to the undercurrent of your message which is rather hard to miss.

"This seems ominous for Google...a shaky claim in mobile....what's left for them...sink tens of billions into mobile and still wind up on the bottom of the value chain...utterly outmarketed"

That's the TLDR version of you pulling Google into a relatively small acquisition of a largely irrelevant tool that a subset of one relatively small platform is even engaged in. Most people reading this story quite rightly react "Instawho?", whereas you see it as a clanging bell of doom for Google. And I'm the emotional one?

I don't see anyone reacting "Instawho?", let alone doing so "quite rightly". Instagram is extremely popular. Stories about how Instagram's backend works have been at the top of the front page on HN for weeks.

I think you think this is some kind of Jets/Eagles thing here, and I'm wearing the green jersey. No. I don't have a side, and I don't think the competitive battle happening here is rational; I just acknowledge that it is happening.

Small point: Your Jets Eagles analogy is really opaque. I'm still not even sure if you realize they both wear green jerseys. (I assume that was the point, but it's most unclear.)


(I know that rivalry from the Patton Oswalt movie).

Oh, in that case, confusing the Jets and Giants will really ruin your credibility. The analogy makes a lot more sense substituting Giants.

I'm going to switch my analogies to roller derby. At least nobody here will know when I'm wrong. :)

How many photo-related startups has Facebook acquired now?

And what do they gain from Instagram?

A user base? Most of them are probably already on Facebook?

Technology for handling photos? Doesn't Facebook already do this as well as anyone else?

Design and UI talent for mobile apps? Don't they already have Mike Matas?

A better question would be: what were the chances that Google could acquire instagram and use them to make a charge at facebook?

The question, of course, sounds a bit laughable. But the answer is a non-zero number big enough for facebook to pull the trigger and defend their territory(social networking & photos).

They can kill off a photo service that rivals their own. (I can't judge which one's better, because I use neither.)

Edit: I know Zuck says they will continue to build Instragram. I'm skeptical.

Now that they own it, there is no good reason to kill it. The only possible reaction to killing Instagram is ill-will with potential and current FB users, and bad press.

Not only would he be going against his word - while the internal metrics of the company are going strong - but he would be killing an asset and destroying shareholder value.

Even Zuck isn't crazy enough to pay $1B for a growing company and just kill it. That would be totally irrational.

I suspect this may very well be the best tech acquisition since Google bought YouTube.

Good luck for both of them - even though I am wary of FB's growing clout and I don't use Instagram, it's nice to see a good service find a good home that can support it over the long term.

I am SOOOO happy that Google bought YouTube. Can you imagine a world without YouTube?

I sure can't. Not a good world anyway.

I don't think they would outright and blatantly kill it. I think there are lots of scenarios in which Instagram becomes irrelevant due to neglect or intentionally crippling it. Ultimately, Zuck wants to keep people within Facebook's walled garden.

Google's acquisition of YouTube was different, because it was an opportunity for Google to serve more ads. I just don't see a similar opportunity for Facebook in the Instagram acquisition.

Most of Instagram's "technology for handing photos" uses S3, as described in previous Instagram tech blog posts. Instagram however has a massive big data structure which would lead to any big company getting high value out of them. Why use the tools they open sourced last week to improve your reliability if you can just acquire the entire team?

I'm pretty sure that Facebook has "handling a lot of photos" sorted:


the thing is that they don't have it sorted. Trying to do any sort of photo management(move, delete, edit) in Facebook is a pain and I always receive database errors thrown back at me.

I'm not entirely convinced that Facebook can benefit from Instagram's infrastructure more than the Instagram can benefit from Facebook's.

Perhaps they just see Instagram as a threat? If everyone is sharing their photos on Instagram, they are not doing so on Facebook.

This is why I loved Instagram and Twitter, it wasn't Facebook... where people I don't even know anymore are all my best friends.

I wonder what sort of people putting photos on Instagram weren't also sending them to Facebook. Wouldn't it likely be people who don't/won't use Facebook anyway?

Friction is my big guess; Instagram is effectively a drop-in replacement for your smartphone camera, with some extra features that are incredibly popular right now (e.g., the overused look-ma-its-the-70s effect).

I've got two guesses:

First, it integrates an incredibly popular mobile destination into the Facebook ecosystem.

A lot of people have been using Instagram as a replacement for their built-in smartphone camera software. You don't even need to go on Facebook to post those photos, thanks to the Instagram Facebook app.

That's ad revenue and location data that Facebook would love to have more direct access to.

Second, Facebook hasn't really been focused on mobile until recently. Mobile features have been second to web features for a long time now.

I think that Facebook has woken up to how far behind they are in the mobile space, and wants to catch up quickly. Photos are probably the most important sector of the mobile space, especially now that phone cameras are generally as good as mid-market point-and-shoot cameras.

Hence acquihiring Mike Matas (Push Pop Press), and now Instagram.

Flickr is still big in numbers but has more or less gone south for a lot of users, and Instagram may have filled this gap.

there's a lot of people that wouldn't fit the bill for facebook friending but are perfect in a looser setting. In this perspective, even if userbase has overlap, I'd guess that the social graph on Instagram is radically different than the one on facebook for a lot of users.

Now depending on how much Instagram gets integrated into fb, that might become less and less the case and give an opening to another photo sharing service...

>Design and UI talent for mobile apps? Don't they already have Mike Matas?

I don't know who Mike Matas is, but given the quality of the Facebook for Android application and the amount of time Facebook's been spending on it... well... $1 billion is still a lot to buy a team to make your Android app not suck.

Though, on that note, the Instagram team wouldn't be the one to buy. Another startup that (took ages to) port their UI to Android and kept the crufty old iOS appearance.

I had been wondering how a product like Instagram would ever make money. Now we'll never find out. I guess traction really does trump all other business metrics.

It's beginning to remind me of the late 90's where the only thing that mattered was number of "eyeballs" on your site, sound business plans/profits be damned.

The difference being that the burn rate of these companies is minuscule compared to what was going on the late 90s. They built a 30 million user social network with 5 engineers. This changes the dynamic tremendously.

path seems to be experimenting with in-app purchases for additional photo filters.

Now before you all wonder about that valuation and technology, consider that Zuckerberg is actually buying the users and their data.

Anyone recall this back in the day? Yahoo! buying BCST.com http://money.cnn.com/1999/04/01/deals/yahoo/

Does anyone else think this valuation is insane? It's like $300/registered user. The company doesn't have a business model. No way the handful of employees are worth $1B. My mind is blown.

More like $30/user, I should note. They have 30 million on iOS and some number > 1 million on android.

Really boggles the mind. Would love to see the company's financials.

I believe this is a bit of a pony show. Facebook will have its IPO soon with an expected valuation of $100billion. A move by Facebook to buy Instagram for $1 billion works in Facebook's favor by positioning public opinion in the following ways:

1. If Facebook has $1 billion to spend then they must be making a lot of money.

2. If Instagram is worth $1billion then surely Facebook is worth $100 billion.

$1 billion for a 13-person team? Is this the highest per-employee price tag?

I thought that was the real story here.

Has to be.

According to Crunchbase and Techcrunch, they raised $40M just a month ago at a $500M valuation. Something doesn't add up here. A billion dollar deal like this had to take more than a couple of weeks to close...


"poised to pick up another round of funding" doesn't mean that the funding round has actually closed. Sounds to me like they were keeping their options open, using the threat of raising another VC round to get Facebook to hurry up with an offer.

According to TechCrunch, the round did close and the money was wired to Instagram last Thursday.


It was announced then, could have been raised in 2011 or earlier this year.

Is it against some regulation to do negotiations concurrently?

No. Some deals will include "no-shop" and other similar clauses to prevent this sort of thing, but it's definitely not a requirement.

No but why raise so much money at such a lousy valuation if you're 30 days away from a billion dollar exit?

I wonder if Facebook will force their sense of decorum onto Instagram. For example, there are people using Instagram to create interesting nude photography, which is something that is not allowed on Facebook (unless I am mistaken).

In any case, I bet you can expect them to force everyone to use Facebook for logging in. Yahoo eventually forced us Flickr users to get Yahoo accounts in order to log in.

According to their press release, Instagram will continue to work independently and use alternative networks. Until they prove otherwise with their actions, all anyone can do is speculate.

I think there's a great lesson here: It takes only 2 years and 13 people to overtake one of Facebook core features. And that's talking about a company that suppose to have the best programmers and designers in the world. That's something you should remember next time someone's tells you that Facebook/Google/Microsoft will do it better.

Ask yourself not whether Instagram is worth $1 billion but whether Instagram is as valuable as 1% of Facebook. Sounds about right to me.

I have to say: it's nice to see an acquisition where the product is valued enough to not be summarily taken out back and shot. I'm curious how it fits into Facebook's product strategy though. It doesn't seem to be their style to keep a brand around that doesn't help their main brand somehow.

FriendFeed wasn't taken out back and shot either -- it's still running, albeit with some broken features. It doesn't hurt Facebook to leave a service running.

With Instagram, I think it's a case of user acquisition trumping product strategy. If lots of people are joining Instagram, Facebook wants to own it regardless of how it fits with their main brand.

That Instagram would turn out like FriendFeed would be my major fear. I mean, who uses it any more?

+1. It really is nice and the news coming from acquirer than the acquired makes it sound better. That just makes it that much more difficult for them to say "it is no longer a service that interacts with other social networks" without a public backlash among user community. Good to see the commitment coming from Zuckerberg.

wait - you think this is actually true?

Is your question about the acquisition itself or that service will be continued?

"the product is valued enough to not be summarily taken out back and shot"

It's a little too late for April Fool's isn't it?

It seems strange that they're deciding to keep the Instagram social network up as its own independent social network, that leads me to think that their acquisition was really for their big data talent and not just to squash a smaller social network. I wish Mike Krieger's tech talk was more than two days away now, so we could hear about how they're going to merge with Facebook's big data issues too.

I can't believe this either...

I'm not very clear on the main driving factor of this acquisition: is it a talent grab, a technology acquisition or did they acquire Instagram mainly for the customer base.

FB really wanted Instagram. They've been in talks since August 2011: http://thenextweb.com/insider/2011/08/24/facebook-couldnt-ac...

I feel like I can safely declare that there is no such thing as a one billion dollar talent acquisition.

Maybe in Zimbabwe, but otherwise, it doesn't seem likely, does it.

Zimbabwe dropped the Zimbabwe dollar in 2009. They now use US dollars.

Perhaps they found Instagram threatening. I'm betting they kill it now that they own it.

So you're betting that they just straight-up lied in their press release.

Correct - I don't believe them. I think they will merge the products to some degree and then let what's left of Instagram rot.

Definitely agree. The notion that they are lying so bare-faced is misguided.

The consensus seems to be that FB was more threatened by the prospect of google aquiring instagram than an independent instagram. Still though, that's a pretty penny to spend.

Well, it certainly wouldn't happen if your company employs anyone other than Turing, Einstein, Dijkstra, and Knuth. That said, that doesn't mean that the talent isn't inflating the price at least a little bit.

Having Turing, Einstein, Dijkstra and Knuth on your team seems like the kiss of death.

If your goal is to succeed in the real world, of course it is. If your goal is to get Google to beg you to pay inappropriately large amounts of money to acquire you, it's the best idea ever.

They probably did to protect themselves... instagram was growing like crazy, last thing FB needs is another giant network to share people with.

That's my thought too. Instagram has a plausible claim on all mobile photo sharing, and there's a strain of thought that suggests that 80% of the value of Facebook is photo sharing. Instagram might be a bit too much of a free radical for Facebook to let float around the market.

Or even worse...end up in Google, Apple, MSFT, Amazon, or anyone else's hands.

This was purely defense just like YouTube, and Diapers.com & Zappos for Amazon.

Brilliant move all-around.

In a few years, this price will seem like a steal...much like the $1B that Yahoo proposed for FB a few years ago seems laughable now.

That would mean the likes of pinterest would be next.

Unlike Instagram and Facebook, people on pinterest don't take their own pictures.

Zuck's post gives a few clues.

"We will try to learn from Instagram's experience to build similar features into our other products. At the same time, we will try to help Instagram continue to grow by using Facebook's strong engineering team and infrastructure."

Oh, so not tech talent, but talent in developing a loyal and active userbase. That could be worth $1B to FB.

I would say customer base is the strongest point, and that indirectly means technology. Instagram is huge. Now many people's default photo app will automatically upload to facebook, as a google+ instant upload competitor.

The price tag certainly is consistent with a 100B price tag on Facebook. I'm going to assume this merely keeps the bubble going until the IPO. In finance land there are rumors of difficulty finding people to buy into the IPO and this should theoretically instill confidence

Instagram is such a great experience for a number of reasons, but one of them is the separate network it provides from Facebook. Maybe I'm in the minority, but my Facebook network is substantially different from my Instagram network. /:

I hope Facebook is careful with this one…

Congratulations to the Instagram team.

With all the news of talent acquisition and subsequent shutdown news, my first reaction was "oh god! yet another shutdown!".

Thankfully there are some very good statements in the announcement. "...we're committed to building and growing Instagram independently. "

Hope this is true especially for the sake of all the startups that are betting on Instagram and building associated products on top.

Can someone explain how this isn't insider trading?

Day before deal: - Instagram closed a $50 million Series B round from Sequoia, Josh Kushner’s Thrive Capital, Greylock and Benchmark at a $500 million valuation.

Day of deal: - Company gets purchased for 1 billion. - All investors instantly double investment.

It's not insider trading, since the stock is not traded on a public market : There's no presumption that all the facts are out in the open. As long as there's no misrepresentation, it's all 'just business'.

How about : "Let me invest right now, so that I won't vote against the FB offer you've got on the table".

Or "If you let me invest now, I can make a recommendation to the FB board that they acquire you".

Thank you :)

Christine Herron's comment on this post seems to explain: http://techcrunch.com/2012/04/09/right-before-acquisition-in...

"It's common to use an impending investment valuation to drive a higher acquisition valuation. Strategic/acquisition values are typically much higher than investment values. eg, as of today, Instagram is worth more to Facebook than it is to Sequoia, because Facebook gets strategic value in addition to market value. Also note that an investor with a signed term sheet would be fully aware that acquisition discussions were taking place, as well as what valuation range they were in. I would be surprised if Sequoia did not go into this with eyes wide open. They win either way - an instant 2X multiple on investment (and a crazy high IRR), or a highly desirable company that they believe has growth potential. Call me jealous."

Instagram is not public.

I am willing to bet the $50M raised is all the cash the founders pocketed, FB gave stocks to investors and the team.

Congrats to Instagram, Django-powered projects making it big.

PHP projects buying them

You know, I used to be pretty lax (careless, even) about geotagging all my Instagram photos.

Now, should I continue to use Instagram at all, I'm definitely not going to share my location.

Just curious, but why the change of heart?

The last thing I want is people on FB seeing "Erik's Backyard Patio" when they are nearby.

Or, even worse, giving my backyard patio a bad review ;)

Facebook will add all the locations to their giant, evil database.

Instagram would have too when they needed to make some money.

Given that a majority of the Instagram users (~30M) are on iOS, what if Apple decides to give away iPhoto for free? Or better yet, make it the default photo app on iOS?

iPhoto is not half bad. http://itunes.apple.com/us/app/iphoto/id497786065?mt=8

Even if it's made the default photo sharing app in the next release for iOS 5+ users for whatever reason, and integrated deeper come iOS 6 this summer, they'd instantly have access to several times Instagram's userbase.

They could using this as a bargaining chip in their negotiations to integrate FB into iOS / iTunes. Because Facebook, a public company, cannot have a $1B acquisition become irrelevant in a couple of months.

Oh man. I could have made a billion dollars by making stuff like this. Instead I am building a long term value company like Apple. Steve Jobs may have been proud. :)

Congrats to Instagram! Can't say I am not bit disappointed though with all the startups getting gobbled up by much larger companies. What's next? Pinterest?

Not saying I'd like to see it happen, but Pintrest would fit in well with Google+, moreso than Facebook. Google+ really does the sharing+comments thing well.

It's hard to know where to root. Independent start-ups give great competition to the big players, but I know a lot of people go into an MVP with the goal of making a large exit. It's a great way to get funding for your next startup.

Why are you surprised? Most startups are built to either go IPO or exit through a buy out. Considering many startups (including Instagram) do not even come up with a profitable business model, it excludes IPO and therefore only leaves an exit as a way for investors to recoup their investment.

Wasn't Pinterest announced the third biggest social network last week? I'm sure it will be a matter of time.

No, Zuck. I meant the app...

After only one week using Instagram for Android it was already my favorite network. Congrats for the Instagram team, but I cant deny that I just lost much of my sympathy for the network, since I can´t stand the way that Facebook handles privacy anymore.

While a bit harsh considering Instagram's success, I completely agree with this quote from Steve Jobs on startups:


So Steve Jobs hated entrepeneurs who who were just looking for someone to buy they startup. Following that line of reasoning, he most have loved it when Dropbox refused to sell to Apple.

One good thing about being bought by bigger player is that it creates a void for other smaller innovative startups. Instagram is easier to compete against now than when it was independent.

Will this mean that they'll finally get a real website? I'd love to be able to browse my friends' photos. It seemed to me that the complete lack of functionality on the single photo page (not even a link to your home page?!) seemed like a big middle finger to non-mobile users. Anytime I clicked through from facebook and twitter, the fact that I couldn't get anywhere from there was enough of a turn-off to make me avoid getting the iOS app.

Or maybe it'll be folded into the horrible UI mess that is FB and go away....

Looks like Gary Vaynerchuk's was right:


This is an interesting take:


Which basically has Facebook buying them because of the social traction. Suggesting that perhaps they did not want this to be part of Google+ which has a lot of pictures but not the same as Instagram does with the social connection.

I think it's cool and bold that he's sharing specific features of Instagram that they plan to preserve. It's bold because it increases the PR cost of changing those plans.

"we're committed to building and growing Instagram independently. Millions of people around the world love the Instagram app and the brand associated with it, and our goal is to help spread this app and brand to even more people"

Haven't you heard, that's the cool thing for startup founders to say while trying their best to get acquired behind closed doors.

It used to be a better world when they just tried their best to get acquired without making public claims to the contrary.

But that's the words of Zuckerberg, not the Instagram founders.


They have a userbase which is 100% mobile, something that facebook doesn't have.

A talent acquisition for $1B? This can's be a serious question.

google was willing to buy path for 100 million very early, which would of been primarily a talent acquisition. With Instagram's community, install base, along with a bidding war .. I don't see it as just a talent acquisition, but primarily the motivating factor. Plus it was for money and stock without really knowing what the percentages are.. facebook stock is valued pretty high these days.


A one billion dollar talent acquisition.

For $1 billion? Definitely not only a talent acquisition.

Exactly. They have over 27 million users. Surely that played a role in the acquisition as well.

This situation reminds me of when Facebook was worried about Twitter: most of the worry ended up being unfounded. I guess I shouldn't be surprised that Facebook was eyeing Instagram, as Facebook's photo viewing UI is now fairly similar to Instagram's. But I wonder if the worry about Instagram merited the $1B exit. Either way, given how small the Instagram team is, they must feel mighty satisfied right now.

Why did Facebook buy Instagram if they aren't going to require FB integration and allow you to post to other networks? Is it purely about traffic now?

This price makes plenty of sense if you think of as "instagram was bought for x% of facebook". I don't know facebook's current valuation, but I could be convinced that instagram is worth something between 2-10% of it (500M users vs 30M users, all sharing pictures daily). The reason for the billion dollar number has nothing to do with instagram, and everything to do with facebook.

You know what I'm afraid of? Facebook doing to Instagram what they did to Beluga. At work, we used Beluga to communicate about work related stuff. Facebook bought it, shut it down and turned it into Facebook Messenger. Goes without saying but we didn't move our conversations/groups over to Facebook Messenger. I really hope Instagram doesn't get treated the same way. That's all.

Zuck's announcement seems really thoughtful and authentic. He hit on a bunch of things people would be worried about -- whether things would automatically post, whether you can maintain a separate follower list from your FB list. He showed respect and humility towards Instagram's follower model, and interest in bringing it into other products. I'm impressed.

It's for the users, to prevent a competitor from 'owning' them - Facebook could block the API, otherwise all of their competitors can still gain access to them. If Facebook does start to screw around with the API then they're destroying value to the consumer.

It's really too bad Instagram sold so soon. I hope they took mostly money.

The API already only gives access to 612x612 images with limited metadata. All Facebook has to do is keep them from improving the API.

This is a smart move by Facebook. I'm almost surprised to see them acknowledge in the initial announcement that they'll retain the ability for Instagram to interact with other social networks, although I'll be interested to see how thoroughly those features are supported as Facebook takes the reigns.

It's nice to see that Zuckerberg's letter actually addresses some key concerns about Instagram's future--a courtesy I haven't seen offered by many recent "acqhirers". However, to echo several other comments, it'll be interesting to see to what degree the stated intentions are actually upheld.

Great, now the biggest question is whether build for growing in users or be profitable from day one, or both.

AFAIK instagram didn't make any cent. Premium filters and and ads would be the first choice, but I heard they decided to focus and grow in people loving their product.

Another big thing to deal with is: to sell or not?

Congrats to Instagram. I think the real value that's been overlooked for Instagram is the Instagram community. Instagram has a very strong community around the world (www.instagramers.com has more than 250 chapter groups) and that may be one of the factors Facebook was looking at.

Interesting that everyone is focused on Instagram as a company and how they just got $1 billion.

I find it interesting that Mark and Facebook were able to buy a company for $1 billion. Its like the joke chris rock said about being wealthy.

"Shaq is rich, the white man that signs his check is wealthy"

I think this shows that FB felt threatened by Instagram because photos are in fact the thin edge of the wedge of social networks. People spend a lot of time on sites viewing photos and FB doesn't like when people are spending time on other networks.

Smart move by Facebook. If Google had bought Instagram instead and integrated with G+, things would have gotten interesting. Wouldn't be surprised if there was a bidding war that pushed the price this high. Reminds me of the recent Firefox deal.

Dear Facebook: My student loans are for sale at cost. Please contact me for details.

I just downloaded Instagram for Android the other day and wondered how to save pictures on my phone with this tool... apparently you can't, so yes, Facebook and them play in the same court: you don't own your things anymore.

Every picture you take with Instagram is saved on the phone. Take a picture, optionally apply a filter, hit next, but don't hit Upload. Go to the Gallery app and you'll see an Instagram folder with your filtered photo, and a copy of the original photo in the Camera folder.

You are right, I was wrong: didn't see this folder.

This definitely isn't the case on iOS. I use instagram all the time, but only for the filters. Pictures I take with it get put on dropbox.

you can save. at least on iOS, tou can.

According to Wired.com the CEO is taking about $400 of the Billion.

Source: http://www.wired.com/epicenter/2012/04/facebook-buys-instagr...

"$400 Million", FTFY.

What's really interesting to me is that they have a flood of geolocated pictures of places now. And they have a partnership with Microsoft. Photosynth integration on Instagram with all your photos would be amazing.

The main reason they were acquired? Not the tech, not the audience (does FB need either?). I guess for the brand + engagement? Someone said as a defense against the big G acquiring them later - sounds plausible?

Unfortunately you still have to write in to cancel your Instagram account.

I just canceled mine five minutes ago with this form:


Out of curiosity where did you find that link? I must have missed it when I checked the site.

The first few hits on a google search for "instagram cancel" indicated you had to write in, but then I found this.


So did I. Thanks for posting that link. It's a sad day for me.

I am not an Instagram user, but after checking it out on my Android though it seems like if FB was playing keep away it was more likely to be trying to keep it out of Twitter's hands.

A billion dollars is an interesting sum. Any bets on whether the Instagram founders told Mark Zuckerburg,

"A million dollars isn't cool. You know what's cool? A billion dollars."

That'd be epic.

Does anyone have an estimate of Instagram current yearly profit (or loss)? (sorry for the basic question, I do not know much about their service)

Instagram has an awesome team and kept stealing eye-balls from facebook. It makes a lot of sense for facebook to get this team AND the product.

As long as they keep instagram intact as the service it is now, then awesome.

If Facebook kills my favorite platform, that would make for a really sad day.

Anyone else think that the proximity of the announcement of Instagram for Android last week to today's acquisition was not a coincidence?

Congrats to the Instagram team. An amazing group of people that really worked lean and delivered what people really needed.

A thought experiment : What if Facebook is making their own phone.. And the phone's camera basically is instagram?

Those investors who passed on the recent round must be kicking themselves. This one has gotta sting. Ouch!

27 million iOS users + 50 million projected Android users means that this cost them roughly $13/user.

2 things I'm very curious about:

1. What role did the Android app play? 2. When did these two start communicating?

Somebody was saying that Facebook has issue with mobile - I guess they solved the problem now.

$1 billion divided by 30 million users = 33.30 dollars.

I had no idea my account was worth that much.

It doesn't say but any wild guess on how much did Facebook pay?

$1b according to WSJ

Looks like this acquisition was in their business plan.

by the way, 1 billion = 1 milliard

I was very confused since only the USA, Canada and the UK use 1 billion = 1 milliard instead of 1 billion = 1k billiard

This is the Netscape IPO of the app economy.

How many people work at instagram?

Facebook acting really fast nowadays, especially when comes to require good developers.

$1 billion for something literally no one uses.

Web bubble 2.0 can't burst soon enough.

I don't think you know the definition of "literally".

Facebook should buy extragr.am as well the best web UI for instagram

Ok downvoters, not asking for a billion dollar valuation, just saying it was a good match with instagram

That's an awful lot of money for a business that had no revenue and had no business model of any kind.


I agree...but the point was not about the revenues, the point was about making sure that when you think about photos - to share or to browse(which is the most used app on Facebook), you think about Facebook. The risk of being displaced by Instagram on that crucial activity was too high for Facebook.

So Facebook is like giant a rail company in the late 1800s.

Well... 1B is an amazing amount of money, but it is "just" 1% of Facebook post IPO value. What are the odds that Instagram growing more and more, the market freaks out, and Facebook stock loses 3-4% in a few weeks. Facebook buying Instagram is an insurance against this bumpy ride happening, and at a price much less that what it would be on the stock once Facebook becomes public.

Except that in the 1800's you couldn't build another B&O in six months with a couple of nerds with Macs.

You're thinking of Valve.

It's a strategic acquisition. Such acquisitions are common, especially in the Valley. This is one reason why startups should primarily work to "make something people want" (the official Y Combinator motto) rather than focusing on making money. True, sometimes a startup achieves spectacular growth without ever finding a way to turn it into money, but examples are surprisingly rare. Can you think of any offhand? Maybe Twitter, but I'd bet they'll find a way to be hugely profitable someday.

Not to mention no product since it duplicates the 'share on twitter' functionality of the camera app.

In 2 years, nobody will remember what instagram was.

Call me paranoid but for them to spend $1 billion on this silly thing tells me they think there are big profits to be made with facial recognition data.

The best argument I've seen for justifying this is as a way for Facebook to neutralize one potential medium-term strategic threat. That said, they still probably overpaid. Who knows how much of an element of behind-the-scenes investor favors-calling-in-favors went on as well. The whole indirect "Let's get into Facebook, pre-IPO" angle, which also sounds plausible.

"Sell to Goole" era is ending. "Sell to Facebook" era is beginning.


Best quiet period PR stunt ever.

Reminds me of when Google launched the official Google Blog during quiet period, then proceeded to post recipes for chicken on there.

Can anyone hear the flush sound?

Upvotes for you, sir!

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