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

 

 

 

Facebook Buys Instagram for 1 Billion

Hola Todos!

Yup – you read that headline correct – Instagram for $1 Billion; that’s billion with a B with a set of 12 zeros.  Click here for the CNNmoney article and click here for the All Things Digital article.

As we are all wondering  – why and….that much?  First the latter question – Facebook did this deal relatively quickly and very much on the down low.  The only way this happens is if Facebook paid a substantial premium.  Teams with much deeper pockets such as Google or even Apple could have easily created a bidding war so I have to tip my hat Mark and Sheryl for pulling this off.  It’s a major power play and it goes to show that Facebook is very serious about competing head-to-head with Google.

The former question – why – is much easier to explain.  While Facebook is already the king of web photos, Facebook is relatively weak on the mobile front and there is much improvement needed with Facebook in that arena.  I fully expect to see much effort, improvement and innovation by Facebook in the mobile space in the next 12 to 18 month.  Second, Instagram and its multitude of photo uploads is an excellent compliment to Facebook’s other major effort at the moment – Timeline.  Instagram make it that much  easier to get more information on one’s Timeline.

In closing, a billion bucks seems like a lot but Facebook will get all that cash back (if it is a cash deal) when they ring that IPO bell in 2012.  The best line from one of the two articles above: “Kodak goes bankrupt and Instagram is worth a billion dollars” – Wow.  Creative destruction (click here for full post) exemplified.

Best regards,

Dr. Dan-o

 

Daniel M. Ladik, PhD

Associate Professor of Marketing

Stillman School of Business

Seton Hall University