back to article Zuckerberg blew $1bn on Instagram 'without telling Facebook board'

Facebook CEO Mark Zuckerberg left his board out of the loop as he personally hammered out a $1bn deal with Instagram for its colour-changing photo software in three days of negotiations in his house in Palo Alto, culminating in the deal on Sunday 8 April, a report in the Wall Street Journal claims. Citing a person familiar with …

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You've got to laugh.

Makes for an interesting study on the psychology of certain CEOs.

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Re: You've got to laugh.

...my first thought was I bet they got him with, "you know what is cool?... a billion dollars".

Still, its nice work if you can get it.

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Anonymous Coward

Re: You've got to laugh.

except it was. erm, 2 billion sounds nice.

but even moron f.. kerberg aint that bleedin stupid.

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Re: You've got to laugh.

Funny thing. He's going to find that being a guy who builds a company from scratch is WAY different from being a CEO. Look at Jobs: built Apple's business, the suits got him fired, and he learned his lessons in the wilderness before he returned. And EVEN THEN he set up a culture of secrecy and need-to-know that is rare (or rarely as effective & successful).

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Joke

Re: You've got to laugh.

I dunno why you're all laughing. He got them down from $2b to $1b. That's a fifty percent cut, ya know. 's not often you can argue a seller into that big a haircut. It's usually only possible when the seller is of 'questionable moral or legal standing'(*).

(*)Or a bank in the case of Greek sovereign debt :D

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WTF?

Re: You've got to laugh.

"I dunno why you're all laughing. He got them down from $2b to $1b. That's a fifty percent cut, ya know."

A 50% cut on something that is worth buttons is hardly deal of the century. Nutterberg has lost his marbles. Photo file sharing with noddy picture modification facilities, hmm, call me a cynic but I smell 3 month fad at $33 million a day.

Pinterest anyone? What, you've forgotten about februaries Most Trendy Site Ever Ever Ever already?

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MIc
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Re: You've got to laugh.

lolz * 1000

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Go

Re: You've got to laugh.

So if you talk the store manager into charging you $100 in place of the $200 asking price for a $50 pair of shoes you'll feel good about getting a great deal? Interesting.

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Facepalm

Re: You've got to laugh.

Did any of you guys wonder why El Reg provided a joke alert icon?

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Re: You've got to laugh.

"Did any of you guys wonder why El Reg provided a joke alert icon?"

Apparently they didn't make it big enough...

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Devil

Re: You've got to laugh.

You need to change the word 'psychology' to pathology'.

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Re: You've got to laugh.

When the owners of Instagram heard it was Zucker calling them up they doubled their price.

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Pint

Oddly

Oddly enough, I assumed that was what had happened. Having kids myself.

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Coffee/keyboard

Re: Oddly

^^Brilliant

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There's no way it can be worth that much. I wondered why it had been bought for such an excessive price. If the board weren't informed then that kind of explains it imo.

But then again what do I know. Maybe a photo app really is worth more than the GDPs of many small countries.

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It's not.

And then they excuse it by saying it's to suck up someone who might have been a competitor. But, still, that's a stupidly hefty price even for "Facebook 2", to be honest.

But in this land, the zeroes are just a number, that's all. You don't have to prove their worth, so long as you have enough zeroes of your own. There's honestly no reason to buy them at all. You could build a competing feature for a few tens of thousands that would be available on MORE platform than Instagram exists on, and do a better job. It wouldn't even take that long (probably not as long as the buyout negotiations would take).

But all these companies are valued in the billions and have almost zero income streams. Seriously. This is "dot-com bubble" all over again. Hell, you have to pay half a million to (possibly) own a single TLD for yourself and still people are doing that for little reason compared to having a bog-standard dot-com or similar.

Even Facebook - they have no income stream to justify their valuation at all. They make money, sometimes, but they don't make enough for anyone involved in their initial investment or future buyouts to actually SEE anything near the amount of money they think.

It's an "SCO damages" style financial operation. Think of a number, make it bigger and more impressive, pretend that it's justifiable.

Seriously, if you put ANY of these companies on Dragon's Den, they would be laughed out of the place based on their valuations and actual income alone (not even *projected income*).

Now Google - Google MAKES money, purely from advertising, and has almost nothing to pay back. Hell, Google could make enough money off using their ads on Facebook *to* fund Facebook if that were to ever happen. They would actually profit. But even then, to pay off the investors or live up to their mysterious valuations would be impossible in any sensible timeframe.

But Facebook / Instagram? They don't make money. The money they do make would be insufficient to base a business on. They certainly would never pay back any investments or live up to valuations if necessary. And even projecting 50 years in the future with 10's of %'s of growth each year, they'd be hard-pushed to live up to the hype.

This valuations mean nothing. If you paid even a million for Instagram, you're an idiot. And people WILL get rich off the back of things like this (of course they will). But, inevitably, one day someone will find out that the company's not worth tuppence. That may not be the same person who bought it. And, especially in social networking, trends and fashions die fast (anyone remember Geocities, MySpace, FriendsReunited?)

Like FriendsReunited: Valued at £175m at one point, changed hands a couple of times, and today is worth about £5m, if that. They once made £22m a year in profit. That's less than 7th of the "valuation" of the company at the time in one year. But it's now not worth, in total, everything together, one quarter of that year's profit. Someone made £100's of millions out of it. That money never really existed, though, and now it's worth not very much (your average private primary school is probably worth a lot more than that).

The trick is to NOT be the person holding the hot potato when things start to turn into reality.

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Nice summary

Have we learned nothing since last time?

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Re: Nice summary @Cliff

You and I may have; Zuckerberg wasn't in the workforce when the .com bubble collapsed.

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Agreed - good summary. However you missed one point:

The CEO of instragram did a fantastic job of selling his largely worthless* company for a ludicrous amount of money - we really have to give him credit for that.

*as in no income - the real value is really what somebody is willing to pay for it.

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Facebook doesn't IPO until May...

It is only a few weeks away, but Facebook IS a private company until that time. It is a sure bet that this transaction will be examined for abuse, but it wont be the SEC, NYSE or other publicly-traded security authorities.

The only part that makes sense is that Instagram has some Intellectual Property that Facebook wanted. I haven't seen anything to establish what that IP was, though.

If the CEO needs the assent of the BOD to do a 1% purchase, then there will be trouble for the CEO. If it is within his charter, then he is expected to do it. Facebook is a privately owned company right now, their rules are their rules.

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we really have to give him credit for that.

I'm guessing he doesn't need credit any longer

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JDX
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13 employees and no cash flow

wow

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Re: 13 employees and no cash flow

13 employees and $1billion....bigger wow!

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Unhappy

Re: 13 employees and no cash flow

Anyone remember when the whole of MySQL AB was valued at 1 billion and people complained?

It feels like that was just after Hindenburg got elected.

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Stop

Re: 13 employees and no cash flow

He's not buying it for the staff, he's buying it for the user base.

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Anonymous Coward

Re: 13 employees and no cash flow

"He's not buying it for the staff, he's buying it for the user base."

Hes still a mug.

I have worked for a few small businesses with more staff and no doubt more turnover. If someone would have gone into any of my bosses office and slapped £10 million on the table for the company they would have snapped their hands off.

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Re: 13 employees and no cash flow

How many Instagram users are not also facebook users? It can't be many, surely.

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Pint

Re: 13 employees and no cash flow

I own the majority of a small business, with about 13 staff, and in the region of £1million turnover. Someone offers me £10million and it's a done deal!

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Joke

Re: 13 employees and no cash flow

They have cash flow. $1b just came into the company :D

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Re: 13 employees and no cash flow

I run a business with no employees, no cash flow, no product.

$10bn and it's yours. Although if you're a really cool dude I might let it go for $5bn.

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Anonymous Coward

Re: 13 employees and no cash flow

Yes, a user base that has no revenue stream and is probably 90% already on Facebook ;)

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Re: 13 employees and no cash flow

Ahh, you've got a 'brand' then?

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Facepalm

Re: 13 employees and no cash flow

And the % overlap with his existing userbase is...?

Well done Instagram!

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conspiracy hat:

I wonder if a plus of a photo modifying app like instragram is that it makes it easier to steganographically burn information about the camera/location into the image itself.

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Ru

Wrong hat.

People already share photos with masses of metadata embedded in them; witness the guy who got busted recently due to his iPhone storing ownership details and GPS coordinates in a photo's exif table.

Conspiracies aren't needed when people are just plain daft.

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Anonymous Coward

>I wonder if a plus of a photo modifying app like instragram is that it makes it easier to steganographically burn information about the camera/location into the image itself.

Christ I hope not, they'll find me!

I'd never used it until I saw the outrage of hipsters here after the Android release - ever since I've been uploading my own weight in LOL cats daily.

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Re: Wrong hat.

you can see and clear that embedded metadata. If it's built into the image itself then it would be harder to detect or remove.

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Say what you like about Zuckerberg...

... but that Mr Systrom is a heck of a negotiator!

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FAIL

Re: Say what you like about Zuckerberg...

Well, considering Systrom agreed for half the asking price, I'd rather have the Zuck.

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Re: Say what you like about Zuckerberg...

I doubt Systrom is disappointed. $2 billion was probably his joke price, and when Zuck didn't immediately slam the phone down he must have though "hang on a second, there might be something in this... I'll go round for tea.

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Re: Say what you like about Zuckerberg...

On the other hand, with him paying at least 1000 times if not more the target's real value, perhaps Systrom (having just sold a bunch of nothing for a billion bucks) is a better bet...

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Anonymous Coward

Re: Say what you like about Zuckerberg...

Yeah a company with hardly any revenue and 13 employees got bought for $1 billion dollars. Zuckerberg sure drives a hard bargain!!!

I bet Systrom did the merriest jig ever jigged when he came out of that meeting. Anyone with any negotiation skills would have probably got it for less than 10 mill. How I would have loved to have seen the look of horror on the facebook board when they found out.

Zuckerberg if you are reading this I am selling an old Ikea settee, I want 100 million for it but I know you are a tough guy to please so its yours for 50 million.

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He's a mug, bitch.

They really saw his ugly face coming didn't they.

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This post has been deleted by its author

Trollface

Not his face. His arse. Which they "hammered out on the sofa." Hope the enjoyment was mutual.

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Anonymous Coward

Deal was hammered out on the sofa

Now, can someone tell us what they were smoking when they hammered out the deal? And, has forensics ruled out the use of Rohypnol?

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Joke

Re: Deal was hammered out on the sofa

Would that make it a bang-up job, or a smashing success?

If the board seethes, then it will likely have been a cock-up

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Anonymous Coward

Zuckerberg -the new Jobs ?

He's not as creative perhaps. Or as sensible (Job's acquisitions were sensible).

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Devil

Go Zuckerberg!

A few more ridiculous purchases to go and then you'll be saying bye-bye to FB when the cash stops rolling in. Another social media site to go into the graveyard.

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Re: Go Zuckerberg!

Another social media site to go into the graveyard.

...and good riddance.

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