Facebook Buys Instagram: More Details on the Deal

Hola Todos!

I was going though the articles on Facebook’s acquisition of Instagram as the news media gained more detail.  Here are some additional thoughts:

-It’s a cash and stock deal.  I was wondering why Facebook would part with that much cash even though the IPO will bring it back. Facebook needs cash right now as their model is not steller at generating cash and there are doing a lot of R & D experimenting right now. I bet the stock kicker was one of the tipping points for the Instagram founders to agree to this deal.  Facebook’s IPO will easily top Google’s record.

-Yes, this deal is all about mobile. Facebook also detailed that photos is one of main reasons users stay on Facebook longer than any other site.

-Finally it appears that Instagram’s founder and chief executive, 28-year-old Kevin Systrom, has a number of parallels that probably made this deal easier for Facebook to nab on the down low.  (1) Mr. Systrom was a former Google employee in product development and corporate and left to do other things.  No love for Google? Perhaps (2) Interning at a company that eventually became Twitter, Mr. Systrom met many of the leaders in tech including a young Mr. Zuckerberg, which Mr. Systrom considered joining Facebook but ultimately decided to stay in school.  With all the Facebook hype, you wonder if Mr. Systrom second-guessed that decision a few times.  (3) After his Google job, Mr. Systrom joined Nextstop Inc., a trip-recommendation site that Facebook later acquired for $2.5 million; another connection to Mark and Facebook.

Usually deals like the Facebook-Instagram one creates a knee-jerk reaction and starts a flurry of other deals by companies who what to “keep up with the neighbors.” The Wall Street Journal suggested Mr. Systrom would personally make $500 million from the cash-and-stock Facebook deal.  Who needs the lottery when you have a contact like Mark Zuckerberg, right?

Best regards,

Dr. Dan-o


Daniel M. Ladik, PhD

Associate Professor of Marketing

Stillman School of Business

Seton Hall University




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