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Zuckerberg Made Instagram Deal Alone 307

Posted by samzenpus
from the going-solo dept.
benfrog writes "According to the Wall Street Journal, Facebook's Board of Directors was all but out of the picture when Mark Zuckerberg struck the $1 billion deal to purchase Instagram, the yet-profitless photo-sharing service. From the article: 'It was a remarkably speedy three-day path to a deal for Facebook—a young company taking pains to portray itself as blue-chip ahead of its initial public offering of stock in a few weeks that could value it at up to $100 billion. Companies generally prefer to bring in ranks of lawyers and bankers to scrutinize a deal before proceeding, a process that can eat up days or weeks. Mr. Zuckerberg ditched all that. By the time Facebook's board was brought in, the deal was all but done. The board, according to one person familiar with the matter, 'Was told, not consulted.'"
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Zuckerberg Made Instagram Deal Alone

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  • and this is how... (Score:5, Insightful)

    by mozumder (178398) on Wednesday April 18, 2012 @06:37PM (#39729011)

    bubbles begin: when non-financiers with access to lots of money decide to make financial decisions.

    • by Anonymous Coward on Wednesday April 18, 2012 @06:49PM (#39729143)

      Ya, good thing it wasn't experienced financiers making financial decisions regarding mortgage derivatives that caused a huge housing bubble and subsequent destruction of the economy a few years ago.

    • by trout007 (975317)

      Not really. It's hard to have a huge bubble without fiat currency. It can be done but they are usually self correcting. But if you have the ability to borrow money into existence you can create a HUGE bubble.

    • Do you even need to be a corrupt, Wall Street "financier" to realize a billion dollars for cruddy instagram was too much?

    • Eh, no. Bubbles being when financiers get access to lots of money.

      The troubles of our present day have everything to do with the decisions of financiers and bankers, and almost nothing to do with anyone else. Zuckerberg might have a lot of money, but his ability to cause a bubble in anything pales in comparision to that of even a small bank or hedge fund.

  • by HermDog (24570) on Wednesday April 18, 2012 @06:37PM (#39729013)
    Pretty much how we all got Timeline.
  • by sir_eccles (1235902) on Wednesday April 18, 2012 @06:42PM (#39729063)

    Why did it take 3 days for the other guys to say yes to $1bn?

    • by jjohnson (62583) on Wednesday April 18, 2012 @06:43PM (#39729083) Homepage

      Because the minute someone offers you $1b, you think you're worth 1.1.

      • Re:I'm confused (Score:5, Insightful)

        by icebraining (1313345) on Wednesday April 18, 2012 @06:52PM (#39729173) Homepage

        Actually,

        Negotiating mostly on his own, Mr. Zuckerberg had fielded Mr. Systrom's opening number, $2 billion

        Two billion dollars for a photo sharing social network with no business model /facepalm.

        • by TWX (665546)
          For all we know, in social networking, this could really be the Killer App [wikipedia.org]. We won't know until we see how it's used. I don't personally think that it is, but I'm also not a user of modern social networking either.
          • Re:I'm confused (Score:5, Insightful)

            by Jafafa Hots (580169) on Wednesday April 18, 2012 @07:18PM (#39729437) Homepage Journal

            Couldn't Facebook "roll their own" photo-sharing service for less than a billion dollars?

            How in the hell did obvious ideas backed by a few weeks of coding become worth billions?

            • Re:I'm confused (Score:5, Insightful)

              by TWX (665546) on Wednesday April 18, 2012 @07:24PM (#39729495)
              MS-DOS was worth billions of dollars, and it was a hackjob because the creator of CP/M wouldn't give IBM the time of day and they needed something NOW.

              Google was a research project that proved phenomenonally successful yet started out simply.

              Apple was from a few hardware hackers building illegal devices in a garage in the suburbs.

              You don't know where the next killer app will come from. In this case, if Instagram was the first company to do this truly correctly in the technical sense, and if Facebook wanted this technology NOW, then we're back to the same scenario as a bunch of hackers in New Mexico ready to fulfill the needs of a giant company from Armonk.
            • by moozey (2437812)
              It's one thing creating an Instagram clone but it's another thing attracting the ~30 million members to use it. If Facebook created their own Instagram there's every chance it could turn out like Google+. Why compete with something when you can just consume it?
              • by cob666 (656740)
                I would be surprised if most of those ~30 million users Instagram claims to have aren't already using Facebook to share their photos.
          • by Surt (22457)

            It could be the killer app, but the real question would revolve around whether or not Facebook could build a superior competitor and win the market for less than a billion dollars. I suspect they could have.

        • by canajin56 (660655) on Wednesday April 18, 2012 @06:59PM (#39729251)
          Seems like they had a $1 billion business model! ;)
        • Re: (Score:3, Funny)

          by larry bagina (561269)
          They had a business model: sell out for $1 billion.
        • Re:I'm confused (Score:4, Informative)

          by euxneks (516538) on Wednesday April 18, 2012 @07:07PM (#39729337)

          Two billion dollars for a photo sharing social network with no business model /facepalm.

          It's not the tech he's buying.

        • Re:I'm confused (Score:5, Interesting)

          by crafty.munchkin (1220528) on Wednesday April 18, 2012 @08:03PM (#39729857)
          Actually, he's buying the GPS data attached to each and every photo taken via Instagram, which will enable him to better target advertisements for places nearby. What appears to be no business model is actually a very clever one - encourage users to take photo's with their iPhone/Android, apply a stupid sepia tone to make it look "classic" and in the process, tell the service where they are down to a GPS co-ordinate, so that companies in the area can have their products advertised to the users.

          Since Facebook (like Google) is an advertising company, this makes a lot of sense.

          • You had me until this: "Since Facebook (like Google) is an advertising company, this makes a lot of sense"

            You're right on about Facebook's $1Billion buying user data, but you're way wrong about it "making a lot of sense"

            It is ridiculously foolish and a waste. Facebook.com is a information trading company that uses social networking to gather user data. They are currently doing the IPO in order for the investors and founders to take profits. The company is a legal blackmail scam essentially...one step up fro

            • by oztiks (921504)

              The fb ad stats comparing to google is what is important and to say the least they are not up to same standard. To insinuate that fb deserves a market cap of 100b would mean that it's ad market is half of that of googles. In realitity it doesn't even come close.

              Fb's only attempt to "grow" is to innovate and that is a tough cookie to swallow, look at the compeition, ms, google, apple, all these brands are delivering communications platforms, media centers, self driving cars ffs. So what is fb to innovate?

              A i

        • That looks to me as if they were incredulous at first. After the shock wore off, they probably made their opening number almost as a joke, almost in the "we're not really interested" range. Once they figured out that the money offered was real, they had to absorb the shock before saying yes, and rebuild their poker faces.

          And that is how three days can pass.

    • My guess is they had their lawyers check everything to make sure they weren't getting shafted.
      • by rhook (943951)

        $1,000,000,000 for a company that has yet to turn a profit cannot be considered "shafted", unless you're the idiot who buys it.

    • by TWX (665546)
      If I were offered a BILLION dollars for something that I'd created, the first thing I'd do would be to hire a lawyer or firm capable of verifying the functionality of the agreement and letting them give any points as to things that could cheat me out of my money. That doesn't happen in a few minutes. "Yes" is a foregone conclusion for all but such a small number of otherwise reasonable transactions that it's essentially a certainty.
    • by bluemonq (812827)

      Because they originally wanted $2 billion. Seriously.

    • He waited for the check to clear the bank.

  • by Anonymous Coward on Wednesday April 18, 2012 @06:43PM (#39729071)

    Mr. Z seems to be a bit immature. Maybe this was an amazingly clever purchase, but it strikes me as a childish exercise in spending. Assuming he retains control of FB after the IPO I don't expect that the company will fare well or spend cash well. IMHO..

    • by TWX (665546)
      Only time will tell us the answer to that though, and possibly not even then. This will pivot on what Facebook does with its new company, and what happens to Facebook writ large in the marketplace and within the rest of the company.
    • by gl4ss (559668)

      considering they had a billion dollars to lay on it _before_ ipo...

      anyways, is it all cash or partially shares in fb?

    • by chrb (1083577) on Wednesday April 18, 2012 @07:12PM (#39729385)

      Business leaders think that Zuckerberg is some kind of genius tech visionary because of the success of Facebook. That's why he gets invited to have dinner with the President, and to talk at the World Economic Forum...

      There is another hypothesis: he got lucky, he happened to be in the right place, at the right time, doing the right things.

      Time will tell...

    • by thammoud (193905)

      While I agree with you 100%, I dont think the money experts, take your pick (Banks, Hedge Funds), will be any better judge of value.

    • I'm not disagreeing with you about whether this was immature. It very well could have been.

      I'd like to put the acquisition into context, though. In 1999 the Yahoo board of directors voted to buy an unproven sports video streaming company, "Broadcast.com", for $5 billion. They didn't have a large base of users. All they had was contracts with the different athletic leagues. That asset completely dissolved in the following years and doesn't exist in any way right now. Check: http://en.wikipedia.org/wiki/Mark [wikipedia.org]
  • by SolitaryMan (538416) on Wednesday April 18, 2012 @06:45PM (#39729099) Homepage Journal
    I had the feeling that there is something personal about this deal from day one. This only reinforces my suspicion.
    • Re:Personal Deal (Score:5, Insightful)

      by FsG (648587) on Wednesday April 18, 2012 @09:26PM (#39730429)

      I figured the same thing. At least one of Instagram's employees, Philip McAllister, was at Gowalla when it was picked up by Facebook less than 6 months ago.

      That guy might be the luckiest bastard in the world, having worked for 2 tiny companies whose only significant act was getting acquired by Facebook. On the other hand, Zuckerberg could just be funneling company money to friends?

  • Profitless? (Score:5, Interesting)

    by NovaSupreme (996633) on Wednesday April 18, 2012 @06:47PM (#39729123)

    >> Instagram, the yet-profitless photo-sharing service
    Make that revenue-less!

    Their whole pitch on making money is presented here in its entirety:
    ". There will be opportunities for consumers to buy extra add-ons like special filters, etc. "
    So, folks, that's it - special filters, etc. Magical words.

  • Shareholders were told, not consulted, that a year's worth of earnings had been invested in a company with 30M+ users, nearly all Facebook users, and zero revenue...

    I suspect that Zuck needs to work on investor relations somewhat...

    • it was 98 days worth of revenue, based on 2011 income.

      not even 4 months worth....

      http://en.wikipedia.org/wiki/Facebook [wikipedia.org]

    • by optimism (2183618)

      He has majority voting rights over the company, plus he's working "in the trenches" as CEO, plus he already has more money than he can spend.

      So no, he doesn't NEED to work on investor relations at all. Unless he wants to add another zero to his already astronomical net worth.

      At this point in his life, I'm guessing he doesn't care so much about that next zero. Which makes Facebook a bad stock bet imho.

    • by Surt (22457)

      Why, he has majority control. He can shaft the investors all he wants and there is nothing they can do.

  • by Cito (1725214) on Wednesday April 18, 2012 @06:54PM (#39729205) Homepage
    Since the Winklevoss twins were interested in purchasing it first. Zuckerberg swooped in and bought it solo with the quickness before the Winklevoss' knew what hit them...

    It's all setup for The Social Network Part 2 :P

  • 100K ?

    Some asshole if probably working on a free version right now.

  • by caffemacchiavelli (2583717) on Wednesday April 18, 2012 @07:14PM (#39729399)
    While I'm still unsure how they got their investors to accept a $500M valuation (Series B, was it?), going into a meeting thinking "Yeah, $2B for a popular photo sharing app platform sounds about right" must take some cojones. I probably couldn't sell Instagram for $200M, I wouldn't even know where to start.
    "So, we have this platform and our users are totally committed to the experience and not just using it because it's hip...and we all know that social media startups tend to stay popular and don't crash after a year or two...and crap, we can totally monetize that thing, like print photos on mugs and stuff...that's like an instant $80M/year right there, minus the cost of the mugs, of course. So, whaddaya say, two billion?"
  • by rahvin112 (446269) on Wednesday April 18, 2012 @07:29PM (#39729549)

    Once Facebook goes public, Zuckerberg is going to be in for a RUDE awakening. He won't be able to treat it like his little piggybank, he will have to consult the board (his bosses after it goes public) for anything he does and the board can fire him.

    The vast majority of tech companies that have gone public in the last 15 years have ended up firing the founding CEO after a period of mismanagement shortly after the companies go Public. The exceptions to this rule are rare and I doubt Zuckerberg is going to be one of them. This is the type of stuff they do and after the company is public and the founders ownership is GREATLY diluted they end up getting fired by the board of directors. Usually it's from not seeking maximum shareholder value, but in other cases it's for outright in ability to grow the company.

    Personally, I don't think Zuckerberg is going to survive more than 5 years as CEO of the public Facebook. But the VC's and investment banks will have gotten their pound of flesh and moved on.

  • by CaptSwifty (61835) on Wednesday April 18, 2012 @08:21PM (#39730037)

    What will this do to Facebook's future IPO when potential investors see a "maverick" CEO who does what he wants without consulting the board? I can't imagine a lot of fund managers will like the idea of putting billions of dollars at stake with someone like Zuckerberg spending huge sums of money without getting input from people who already own a large percentage of the company.

    How does Zuckerberg own only 28% of the stock but have 57% of the voting rights? Are there really that many non-voting shareholders?

  • by bhlowe (1803290) on Wednesday April 18, 2012 @11:29PM (#39731009)
    Kevin Systrom recently sold Instagram to Facebook for a billion dollars and this is how he feels about the sale:

    Here is what he had to say about it. [youtube.com] .

After all is said and done, a hell of a lot more is said than done.

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