it suggests that there are things going on that we do not understand. It could be that Facebook is buying authenticity (which would be ironic), or it could be a rational calculation of value per user, but I suspect something else is going on. I have two theories.
1. The Instagram guys really didn’t want to sell.
They had made something because they loved it. They wanted to see where it would go. They wanted to make something meaningful. They didn’t want to join an internet giant, or they would have already. So Facebook kept upping and upping the price until they couldn’t, in good conscience, turn it down. Everyone has a price. Mine would be much less than that.
This was my initial thought, but then as I thought more about it, I came up with the second theory. This is not based on any evidence, besides some inkling into human nature.
2. Instagram was the object in a dick-swinging bidding war.
There are exactly four companies who would have gotten into this tussle: Facebook, Google, Apple, and Microsoft. Instagram had hit upon something that none of them had yet to master: the intersection of mobile, social, and photos. Facebook gets photos and social, but has a weak mobile experience. Google has Android, but Picasa and G+ have not gotten serious traction. Apple gets mobile and photos (look at what they’re investing in the camera of the iPhone), but get social about as well as Ted Kaczynski. Microsoft needs to get traction — Instagram on Windows Phone could help make that platform legit.
So you have 4 players, hoards of cash, and a company that is in this sweet spot where they could augment any of these players perfectly. And once they start sniffing around, well, then testosterone kicks in. Zuckerberg, Page, and Ballmer are not meek folks (I suspect Cook isn’t either, but he doesn’t have that kind of chest-beating presence). The initial logic of the business deal morphs into a matter of testicular fortitude. And, because the others are interested, the deal turns from being one about acquiring a potential asset, and becomes one of preventing the competition from acquiring that asset. And the bidding gets out of hand, until you get to the point where a company with 13 employees and a fat AWS account (or however their stuff is stored) is somehow offered $1 billion.
Anyway. A theory.
The thing that I fear most is a total misreading of the reasons behind Instagram’s success, and the inevitable launch of a thousand “mobile app” companies trying to get on Facebook’s radar. As others have pointed out, Instagram was great because it was built on passion and care for the product itself. It was not a calculating or mercenary play. But now we’ll see countless hours of creativity and productivity pissed away on folks pursuing “the next Instagram” in a sad mini-Gold Rush.
A billion was probably the lowest price possible. Say you run a company that can raise more money than it needs at 500 mil and is not just growing but is actually accelerating growth. No way you sell at 500, you can keep control and be damn well off for that. If anything they got underpaid…
Sad gold rush indeed. That’s always the downside with these booms – quality of work decreases and number of sharks and inauthentic gold miners increase.
There is an inspiring upside to this story though – the fact that Systrom was a non-developer working in marketing that taught himself to code at night to develop his own app. I hope Codeacademy, Treehouse and the like create a thousand more Instagram-wannabes in that sense, because even just a rough working prototype of a good idea is a million percent better than the “idea guys” that hang around hackathons with a slide deck and insist they just need someone to build out their vision for everyone to strike it rich.
And this week’s Big Lotto winner is…!