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 …
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
"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?
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).
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.
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.
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.
"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.
>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.
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.
This post has been deleted by its author
This post has been deleted by its author
I'm sorry...a BILLION bucks for what...? Seriously? This counts as indispensible, market-changing innovation does it?
FFS.
Also, this going-over-the-head of the board business will not end well either for Zucks or FB. They'll spend the next 3 months or whatever it is until IPO trying put a muzzle and a leash on him after this "stunt". Though "Stunts" are normally *a lot* cheaper than $1bn...
This post has been deleted by its author
"They bought the users, not the software"
He may have *thought* he was buying users, but those users haven't actually signed any legally binding contract with anyone so he really has nothing to show for his billion. It is unlikely that he'll be able to sell those users on to anyone else, so in straight accounting terms his "asset" is worth a damn sight less than he paid for it.
At best, you could argue that he is now free to develop his own version of the same product without a risk of being sued by Instagram. However, since Instagram were demonstrably not making anything remotely resembling a billion dollars out of the invention, even triple damages wouldn't have cost as much as he has paid.
What? No due-diligence? Suppose the two discussed it privately, over wine, say, or golf, 9 months ago, and decided that if certain hair-trigger events occurred, they'd continue to agree to sidle up. Then, at the trigger event, IG's pres only needed to grab the IP-producing staff 1 hour before Z shows up, and sequesters them to a board room under some other pretext to keep them from twittering the developments... until AFTER the deal was formalized.
Still, you gotta wonder how much of the $billions would have been eaten up by attorneys and filings and such. Maybe Zuckerberg was smart on THAT "account", hahahaha....
The lawyers are probably rummaging around trying to figure out a plane mishap or a series of never-ending document vetting to make up for being cut out, hehehehe.
If the valuation of Instagram was unorthodox, so were the negotiations. No bankers or lawyers were involved in the sitting-room deal which was thrashed out between Zuckerberg and Systrom.
Now that is progress and surely a sign that they are not needed in modern big business between principled principals.
Not a good day for parasites, that one.
Nice one, Mark. It would be a pleasure doing modern big business with you.
The interesting thing is that the sale was partly in shares. That means some of that 1bn figure is based on Facebook's own insane valuation, and that it's not really as ridiculous as it sounds.
1bn cash is not the same as 1bn worth of shares in Facebook, and I don't know how the split between cash and shares, but I'd bet that the bulk of the 1bn is shares in Facebook - and after FB goes public, that 1bn may not be worth nearly as much.
If Zuk wanted it let him get it.
If he'd gone down the other route of "proper" negotiation, how much would a shed load of Lawyers have cost?
The legals might have got it down to, say $TooMuch, but their resulting bill would leave the whole transaction at $WayTooMuch,ButThankYouVeryMuch,NewAstonMartin,DoYouTakeCashToAvoidTax
A few less lawyers getting their piece of a pie that wasn't theirs to have in the first place can't be a bad thing, can it?
Just my thoughts...
you're just overly US-Centric. Stating the amount in British Pounds isn't incorrect, and as long as the current conversion rate is employed and the math accurate, it doesn't matter if you express it in pesos, euros or base 8. It's still the same number.
Some of us Murricans have noticed other countries and currencies exist :-)
"Instagram... saw a successful launch on Android, much to the chagrin of many an Apple fan."
I keep seeing statements like this, but where are all these heartbroken "Apple fans"?
I have an iphone, I've never actually downloaded Instagram, but it never occurred to me that it was Apple exclusive, or likely to stay that way if it was popular.. it's no secret that there are more Android handsets out there than iphones, so it seems a bit unlikely to me that anyone would be that upset or surprised by a social network expanding on to both platforms..
This supposed upset wouldn't be a little bit projected on the part of others, would it?
"Only three people said so,"
It used to be that there were only three people on the Internet*), and everything you**) see is just impersonation by those three. It's up to seven now, and because of the workload and the immensity of keeping track of who said what we're considering getting another two or maybe three on board, and also someone who can write us a computer program to do the administrative heavy lifting. Twitter was a gift from heaven though, we've got 99.9872% of the accounts set to auto-retweet, which cuts down tremendously on the amount of original (hah) content we have to inject there.
*) or was that just Usenet? I'm losing track a bit
**) you're not actually on the Internet, you just think so. You're impersonated by one of us.
People are saying it's been bought for it's 'user base' rather than the obvious fact that it doesn't make any money, but that leaves me with the question of what Facebook do with it?
If your on instagram and you aren't on facebook I'm going to say you've got a good reason to not be on facebook ie you don't like it as a site / company ethics / data mining. In which case facebook buying instagram is going to probably mean those people will close their accounts. All the other ones who aren't bothered will already have facebook accounts, so all they are doing is buying a service for a stupid price which has duplicate users to their service.
A mate of mine has been posting his stupid pictures taken with these filters directly onto facebook for months, so i really don't see what Zuck gains here apart from egg on his face when it all goes pop pop
If they didn't pay for all the full legal bells and whistles (its only small anyway) then I bet they saved a few million on each side anyway so probably kept that as purchase price reward for a quicky deal.
(Work in a company with acquisitions going on all the time and legal fees can be eye watering even though they are only relatively small deals of £1-2m).
I like it, just because he didn't follow protocol everyone has a go, I bet if did it the other way and it cost a fortune the same people would also LOL.
No board or banks involved, deal made in a living room... panicking much, Zuckerberg? Facebook should concentrate on making a mobile client that doesn't duck balls instead of trying to buy a popular mobile client which does one job, simply.
BTW the simplicity of apps like Instagram shouldn't be laughed at - that's the whole bloody point, who wants full Photoshop in their bloody pocket? See something memorable, snap, post-process with a little bit of nostalgic flair, post on web.
So sneering at it only shows the immediacy of sharing that the mobile web can bring has passed some people by...
I believe we are still in pre IPO so the 100 billion dollar valuation is noise.
But still the other 40-50% is owned by investors and Zuckerburg has a fiduciary responsibility especially in light of his desire to cash out. Why else is he taking the company public?
Anyone purchasing shares in FB after this stunt probably bought shares in groupon.
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.
I'd say 4-6 months 3-4 people can create that product. There is nothing sophisticated or hard. No real time processing on the servers, image filtering is well studied too.
I still maintain it's money laundering.
If he didn't do this as a shift move to throw some money at a friend he's an absoute moron. If it were about buying out his friend's company then he'd just be acting like a prick towards the other board members.
Instagram surely can't even have any patents given they're doing something photoshop has done for ages. Buying a userbase is stupid given it could disappear over night since instragram is just a fad at best.
@lee; did you bother to do ANY research before ranting like a child who ate too many paint chips this week? Faceboook had $1.6 BILLION in revenue the first half of 2011.
http://techcrunch.com/2011/09/07/report-facebook-revenue-was-1-6-b-in-first-half-of-2011-net-income-500m/
I'd suggest before spouting off like a half-wit, you do at least a*LITTLE* research.
"Mr. Andreessen, whose venture-capital firm was the second to invest in Instagram, cutting a $250,000 check before the service launched, was surprised when Mr. Systrom walked into the room about an hour into his meeting with Mr. Zuckerberg, the people said."
I'm curious about the Facebook board's Mr Andreessen. He's apparently invested $250,000 into Instagram prior to the sale, so how much does he stand to gain now? I see that the sale is primarily Facebook stock, so wouldn't Mr Andreessen be winning quite a bit of his own stock? Stock that they're all hoping will be worth a metric fucktonne now?
Perhaps it's possible that Mr Andreessen knew a bit more about what was going on and the $1b price paid had the secondary goal of lining the Facebook board's own pockets.
I had never even heard of Instagram until I saw the Apple lot whining about it appearing on Android.
If I had been one of the "Userbase" I'd probably stop using it based on the sickening greed displayed by the CEO when placing that an inflated value on my head.
Someone mentioned money laundering - that sort of fits, along with creating a buzz and cooking the books in time for the FB IPO "Look we now include Instagram which alone is worth $1bn!!!".
When this bubble bursts, how's about we follow the current trend for "retro" for the next one? I've got a couple of nice Tulips I got from B&Q at the weekend that I'd be prepared to let go for a couple of million each --> Tulpenmanie
I have never used Instagram, though I seem to recall it has a product icon that looked remarkably like an old Polaroid camera (I haven't re-checked this factoid). In fact, this likeness was IIRC the reason I even bothered to look closer at what the app did. I subsequently moved on as Instagram provides no utility of any use to me. I DID, however, look at Instagram because of "the Polaroid" thingy.
a) I wonder how many others were attracted by the Polaroid camera icon?
b) Is there a business model somewhere in using (or is that abusing) the image of a massively well known product to gain "eyeballs" at zero cost?
c) If the answer to (a) is "a zillion" and the answer to (b) is "Yes", then I have a great list of "images" we can poach to launch a product.
Philip
I would like to know how they counted out £1bn of Facebook shares. The shares are unlisted and can't be freely traded, so how many shares are worth £1bn? I remember Facebook was widely regarded as being "worth £15bn" at one point on the basis that Microsoft had bought about 5% for £750m. The maths may be correct, but there is absolutely no way Systrom can actually go out and buy goods and services worth £1bn. Even if Microsoft decides they want to buy another slice, and Systrom would like to sell his, they won't ask him. They'll get the shares from some shadowy Melmotte figure.
There is of course the upcoming IPO. But as above, it won't be Systrom's shares on offer, it'll be the private equity firms' and investment banks' shares. He may even be restricted from selling his shares all at once in order to keep the share price up. If Facebook becomes the next Google - i.e. has a successful IPO, the shares don't tank, are traded in sufficient volume that he can sell his "£1bn" without breaking the market, and all this goes on for long enough for him to outlast any dealing restrictions, he'll be rich. If any of those things does not come to pass, he may as well have been paid in Monopoly money.
Still, I bet he's enjoying himself as long as he doesn't think about it too much.
and I hope he enjoyed it.
However, he in turn "hammered" the collective arses of the lawyers and other parasites that usually flock like vultures around these deals so I say good on him for that.
As for "Shareholders Suits" etc, ummm..no. FB is private still, sorry.
The Register 
Biting the hand that feeds IT
Copyright. All rights reserved © 1998–2024
