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Zuckerberg made Instagram deal without board.

Wow. Facebook CEO Mark Zuckerberg reportedly just informed the Facebook board of directors that he was going to buy Instagram for a billion dollars on the morning of the announcement.

It looks like Zuck was played. When Zuck expressed interest in buying the company, Instagram chief Kevin Systrom blurted out what was no doubt a ridiculous and somewhat arbitrary figure. "$2 billion!"

The two negotiated over a few days, and Zuck talked him down to $1 billion.

This is not good news for a company about to go public, because investors fear loose-canon CEOs who throw money away without taking advice from anyone, not even their own boards of directors.

http://online.wsj.com/article_email/SB10001424052702304818404577350191931921290-lMyQjAxMTAyMDEwNzExNDcyWj.html
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176 comments
 
Are you saying that he didn't consult with the Winklevoss twins?
 
Didn't he get to where he is by being an insufferable prick in the first place?
 
he's got balls. You gotta respect that!!!
 
instant gram lets them lock up something they didnt have which is a way for facebook ppl to share images and manipulate them . Not a bad buy for them maybe alittle pricey but what the hell soon fb will be worth 80-200 billion
 
I'm amazed that anyone would set a billion dollar price tag before one minute of due diligence is done.
 
If Zuck had gone to his board, they would have never allowed the deal. And I do like the Systrom-sky-shooting theory of a random huge amount :)
 
After the IPO the SEC might say something to him. Not sure this would fly under Sarbanes Oxley
 
Pointless comment: I read 'without beard' on the first time around, looked at the picture and thought: "yeah, so?".

You can continue discussing the topic now.
 
The other thing is, you can't deny he's getting shit done. What good it will do the rest of us remains to be seen, but he's certainly at the point where he has a responsibility to use the power he has at his disposal for true good.
 
Classic Zuck and classic screw-up. What a huge lack of judgement. He let is chemistry beat his brain.
 
And +Vincent Tijms , now that you've pointed it out, I think I would probably respect him a lot more if he had a beard.
 
+Jack Hauer that's probably why he did it right now, so he doesn't have to deal with the SEC and their bureaucracy
 
Well its his website, It's his company and he can do what ever the hell he wants with it
 
Mergers and acquisitions is serious business. I respect CEOs that take charge but Zuck is in way over his head if he thinks that his shareholders (soon to be) and his Board of Directors will stand for that type of activity.

As +Jim Cramer says, buy at the IPO and "get the hell out"!
 
People who criticize Zuck forget about that time when he rejected billions of dollars for Facebook and got flamed by every newspaper around the world only to prove them wrong a few years later... only those guys know what they have in store and spending 1% of your market value to bring a billion users to the mobile world doesnt seem dumb at all. Great product + Huge userbase = Probable Success
 
Oh, by the way .... I spent a Billion dollars this morning ....
 
What's the point of a board then if you aren't using it? And if you're going to go public, well, you definitely can't be a loose cannon because that doesn't go over well with shareholders either.
 
Surely it's not news to anyone that Zuckerberg has a bit of an ego...
Greg M
 
Once the IPO goes live there will be a lot less in house control as there will be a large shareholder to keep happy. As I thought the Instagram was comprised primarily of stock which no doubt will be based on the value of the stock on opening day.
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shows the virtue of having one person in control, the entrepreneur
 
I can't see Instagram being worth $1bn. Can you remember when YouTube was purchased by Google for $1.65bn, I was sceptical then but look at how well that has come along, a great deal for Google. So I am trying to be open-minded with this acquisition but it doesn't add up.
 
look at (1) number of users, (2) acceleration of user growth, (3) strategic value in mobile -- what you think now?
 
Time to grow up, Zuck. You're playing with the big boys now
 
Somebody who is running a huge company is a just a boy, and those who are commenting are somehow big deal ... optimistic, very optimistic
 
He's trying to be Steve Jobs. G'luck wit that.
 
I have heard a lot about how the value is in paying for mobile users, and at that Instagram is supposedly a relative bargain but to me that sounds suspiciously like the "paying for eyeballs" that people did in the dotcom days.

To those that want to point to this all being part of a bubble, it seems to be following some of the same storylines as before.
 
I honestly thing Mark Z doesn't want Facebook to go public. He's a control freak and doesn't like having to answer to people. His people talked him into making that decision to go public. They certainly didn't need the money. People are throwing money at Facebook. My concern isn't that he went behind the board's back, as much as I see a big ol' waiting to be popped social media bubble and a lot of people are going to come crashing down harder than the .com bubble. Some of these valuations are outrageous. I didn't believe in Facebook's valuation and I certainly don't believe in Instargram's valuation. But then again, I'm not on the board nor am I an investor. shrugs
 
As much as I'm not a Facebook fan, the comments here seem to think Zuckerberg has made a huge mistake, or is out of control or whatever. Has he made any major mistakes so far? I really can't think of any.
 
+Stuart Memo A purchase like this is not necessarily going to break the company. The issue is that people are afraid of Facebook turning into another Yahoo - buying companies because they can, not because they really know what to do with them. Time will tell, but the fact that he did not seek much advice on the purchase indicates a kind of risk-taking behavior that is scary to many investors.
 
Not a big fan of Zuck either but the same kind of big risks can make someone an incredibly good leader. Boards move slowly inherently and are overly cautious, that is why many leaders strive to maintain control of their companies after they go public, to allow them to still make decisions.
 
I'll invest in a motivated unapologetic founder before an apathetic, entitled MBA who managed to 'work' their way up to CEO any day.
 
Oh, "the board". The board never did anything decisive for Facebook since Facemash. And, oh, "investors fear". I bet the investors who brought Facebook to the $100 billion realm are not worried about Zuckerberg at all (actually, they may be intrigued, but FB has the money, real money, to spend: its ad revenue in 2011 was $3.2 billion, plus, we're in April 2012, he already must have made 1 billion this year).
 
Facebook won't exist in 10 years, they dont have anything sustainable
 
I started to use Instagram 2 weeks before the announcement. After a week I realized that I spent more time on Instagram than on Facebook. I started thinking 'could this be the end of the Facebook era?!'. You know, everything comes to an end...If they wouldn't have bought Instagram, I would have been short on the Facebook stock after the IPO. Now, I think Facebook will buy all new social media companies that could be a possible competitor, keeping their position until they go public and for a few years ahead.

That Zuckerberg guy knows what he's doing!
 
I'm amazed he's still apart of it. Facebook might be better if they would hurry up and get his ass away from it. Even though Facebook is probably already warped beyond repair!
 
+Gene Scalf exactly. It's like an old girlfriend. At the time, there was nothing in the world like her, until you meet someone new and gorgeous and get married and then you are like...what the hell was what's her name's name?
 
Robert Townsend, the CEO of Avis rent-a-car back in the "We Try Harder" days, wrote a wonderful book about his experiences called Up the Organization! One comment he made was that a major job of a CEO was to put the board to sleep, and that he had never heard a suggestion made by a Director at a board meeting that was worth listening to, let alone following. I really don't think things have changed dramatically in the intervening decades, and Townsend's advice is still valid.

The basic responsibility of the board is to hire and fire the CEO. If he's good, they keep and reward him. If not, they fire and replace him. Meanwhile, they stay out of his way. You can make a good case that a board that plays back seat driver is bad for the long term health of the enterprise.

So Zuckerberg informing his board of the Instagram deal after the fact is basically just amusing. I don't believe the board is in a position to reverse him, so exactly when he broke the news is largely irrelevant.

The question is whether it will be a good move, and the answer is "We'll see." I can understand why Zuckerberg would want to do it, and I can certainly understand why Instagram would say "Sure!"
 
And if this news is really true, I bet Mark must have felt something like when he dumped the Winklevoss and went for the big prize, all by himself. Somewhere he may have wanted to feel that again. And you know what is better than one million?
 
+Dennis McCunney Perfect. And that's every board question, right? (if the guy is good?). I'm not a fan, but my hunch is, if he wasn't, he wouldn't have brought FB to this position.
 
Most CEOs have latitude to make acquisitions within a certain price range w/o board approval. If Fb is worth what they say it is then this is less than 2% of market cap.
 
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FB's valuation is speculation until they file so it could be 2% or it could be 5% depending on the health of the market at that time. In either case even 2% isn't nothing for speculative platforms that haven't generated revenue however I do realize the platform alignments here.
 
It's only a billion "facebook" dollars and not real money
 
I want to express my feelings on this but I just can't do it while being civil.
 
A lot of people STOPPED using FB for Instagram. Most people go to FB to look at their friends photos and Instragram took the core of FB and stripped everything else out. G+ is a better technological version of FB, but Instagram is elegant.
 
+Nando Pereira I'm not a fan of Facebook or Zuckerberg, but he's made enough of the right moves thus far to build Facebook into an imposing enterprise.

I'm more interested in down the road. The problem with being in Zuckerberg's position is that it's easy to become infatuated with your own brilliance, and even easier to surround yourself with subordinates who will polish your outsized ego and tell you what you want to hear. I'm curious as to whether he has smart people reporting to him who will blow raspberries if they think he's off base and whether he will listen if they do.

Townsend told another story in Up the Organization! about being on the verge of approving a discount subsidiary that would compete with their bread and butter line at lower prices in the interest of gaining market share. He tried out his brilliance on a Regional VP named Stepnowski, who listened to the glowing exposition, and said "I don't know what you people call it, but we Polacks call that pissing in the soup!" Townsend listened, heard, and cancelled what would have been a bad plan.

Zuckerberg needs people he'll listen to who will say things like that when needed, and be willing to change his mind based on it.
 
Instagram is a good photo-sharing platform and facebook is the social network of sharing photos. It makes total sense with 30 million users and growing 10mm after FB acquisition. That is phenomenal growth. If you get the eyeballs you can monetize the platform.
 
Oh snap! That's no bueno, Marky!
 
Zuck overpaid way too much for Instagram. The service has no revenue model. NONE.

Yeah they have 26 millions registered users but there is probably a lot of overlap with Facebooks own user base since people share Instagram photos on Facebook all the time.

If Facebook wanted to add photo sharing (more than they already have) and some basic image editing options they could easily have developed the functionality in-house for a fraction of the price that Zuck is paying for Instagram.
 
Couldn't happen to a nicer guy. I hope when he shows up there, they move the front door as an 'improvement'.
 
Meanwhile Google+ Has had the Creative Kit (Ways to Manipulate) for pictures since October 2011.
 
Well, what do you expect from someone that supports CISPA??
 
+Jonathan Decelles he didn't buy instagram for the users or a 'revenue model' he bought it for developers that actually intuitively understand developing for mobile. the facebook android app is such a joke i can't even use it anymore. :p
TJ PECK
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zukerburg? y not zoidberg?
 
A billion dollars for developers?! Have you done the math on that one? He could have paid each Instagram developer 1 million a year for decades given that purchase price...
 
A board's primary function is to fire CEO's.
 
He can't get better programmer for the mobile app so he have to buy Instragram -_-
 
hey Zuck, I can use some of that throw away money!!! I will only need a couple mill!!!
 
user engagement is also a major factor in valuing these social media properties.
 
+Marcos Da Silva you sound like the guy sitting at a dive drinking hamms tallboys $1 for happy hour and being incredulous that the suits come in and belt back shots of jonny walker blue on the company expense account.

who the fuck cares about how much it cost, he has more money than god and it's essentially a write-off for all the taxes they just paid. :p
 
he had a perfectly good explanation why he bought instagram for that amount. facebook felt threatened.
 
I just got it on the app store for free. Ha-ha
 
Not long ago, one was considered a dinosaur if one was not on Facebook. A new elite is now taking shape. Now, one is considered a wise man/woman for not being on Facebook..
 
Deepak... Thank you. I recently deactivated my account and hearing someone else say that gives me strength to tell who ever wants me back on that horrendous platform to JUST SAY NO!
 
Haven't other articles pointed out that this "IPO" is basically Class B stock, which will have almost ZERO say in how Facebook will be run?
 
SHANE: Quite early in Facebook's life, I took the view that good things (along with bad things) were happening to us -- in their pre-ordained proportion from time to time -- even before Facebook appeared on the scene. I couldn't, for the life of me, imagine how Facebook could change the ratio of good and the bad in favour of the good. I think I saved a lot of time, and preserved my sanity better. I don't really care for what what I might have missed out on.I have quite a few friends, who made a similar choice, and have no regrets.
 
hopefully his decision won't turn out so bad aftermath, and next time h e should conduct consultations with the board..tsk3
 
This is why they are better known as Failbook
 
I'm a Network Security guy and Facebook was never appealing to me because of the amount of shared data it
was producing. My family convinced me to try and for a year I have. It has caused more issues in my world than I care to explain. How can you ever protect anyone's privacy on such a huge platform. Answer is.. You Can't. I have informed my clients that fb is causing some serious network issues with the flash games and the backdoor spyware that accompanies most of the apps being utilized on said platform. So for now on I and my immediate family will stick to texting. Everyone else can write me a good old fashioned email or send a post card. Easier and you don't have to answer fifty stupid questions every time you log on. And it Freed up about 500 or so contacts on my droid. LMAO....
 
This is definitely the company that's going to best Google, right? :-P
 
I don't see how instagram would be worth that much to facebook... And I can't see a practical investor buying shares of FB, either. It's kinda hard to facebook to grow, so what would be the point of buying in on the top floor?
 
Cheers to that fella. To hell with Facebook!
 
Indeed FailBook or more I call it Fakebook
 
Perhaps the deal won't turn out to be as terrible as it seems but it sure seems that he is an arrogant loose cannon and these types inevitably end up losing in the long run. Look what happened to yahoo.;
 
i think FB bought Instagram before it integrated G+ sharing. i think that's pretty big. now FB can make sure it will never share with G+
 
"Loose-cannon CEOs" ?? Hardly. It's his company, let him drive it.
 
yes, the board is often a rubber stamp. The problem is the board usually gets all its info from the CEO
 
The loose cannon and also a genius! I can't wait for FB to go public.
 
Zuckerberg built Facebook. I can't blame him for doing what he wanted to do. Facebook has done a great job at staying relevant throughout the years. I believe that the Instagram purchase will help Facebook keep the #1 spot on the social netwok spectrum.
 
One can also point out another company that buys the crap out of other companies. What was it called again? Oh ya! Google
 
+David Ex Why buy FB? Money. With valuations being proposed in the $100 billion range, lots of folks will jump in hoping the stock value will rise much higher than the IPO price they will pay, and they can turn around and sell at a huge profit. I think visions of another Netscape are dancing like sugarplums in various people's heads, fueled by FB's reported 800 million users.

Whether that 800 million users translates into revenue and profits sufficient to support a valuation like that is another matter, as is whether FB's stock price will remain at or above IPO level or wind up under water when reality sets in. The cursory scan I've made of FB's reported financials doesn't support that sort of valuation, but I'm not interested in buying FB stock for short term gain, and the factors driving this aren't fueled by rational analysis. There's an enormous amount of money pent up looking for places it can be invested to make a lot more money. Tech is becoming fashionable again, and tech IPOs are seen as possible ways to become filthy rich.

In those terms, FB's coming IPO is significant beyond FB itself, because it will be seen as representative of tech IPOs as a whole. If it does well, more money will flow into the tech sector looking for promising startups to invest in. If it does poorly, it might get tough for good ideas to get funding afterward.
 
He surely can see the future which most of us can't..that's why he is the youngest billionaire..-_-
 
I don't like anybody's video's. J.K! I love all of them.
 
+William Brockett -- Google's CEO(s) don't buy companies for a billion dollars without notifying the board -- that's the whole point of the article.
 
I see your point. I still stand by what i said about him being a genius. In the end we all know that if it turns out to be a good call the whole "he didn't ask or tell the board first" thing is going to be forgotten about.
 
It's just another familar story about a hungry rich man who isnt satisfied with his net worth, going fishing for more of that green glory. I wonder if they experience the same feelings as an addict of drugs or anything else where they keep chasing "the feel good high". And to keep all that money to take a dip in................it makes no sense to me. Sry, Im not mad at richh people I just get mad at the fact that theres all this money out there and instead of 1% owning most of it and the other 99& has nothing. if the 1% even kept most of their green glory and divided the rest amongst their fellow "earthlings", could y "ou imagine the difference it would make for all mankind as well as this place we humans inhabit..
 
Zuckerberg had to take the two billion, he probably knew it was going to be valued at much higher than that, and soon.
 
<--------------wasnt ranting and raving or trying to start something, i just had to get it off my chest. WHEW!
 
Why the hell would anyone care what this guy does with his money lol, if he wants to blow it all on a company that's not going to be around long, hell, let him! Google+ is eventually going to fall off the map just the same as any other site once something "new" and "hip" comes out. I honestly don't blame him either for doing it without consulting his board of directors, shit it's his money haha.
 
its boosting up his rep and trying to stay on top
 
I don't know if you could call him "going rogue". That's like saying Tebow is going Christian. He kind of started there. Anyone investing in Facebook should be doing so with a lot of risk awareness.
 
It was a nihilistic publicity stunt to create IPO buzz. From a standpoint of business logic, the deal makes even less sense than when eBay bought Skype. Instagram could easily go away tomorrow, so could FB at this point... I think non-spec investors aren't going to view this in any way like a Google IPO.
 
No he can't. Facebook isn't his private money farm anymore, its gone public, which means the public who invested co owns the company. He cannot take spontaneous decisions without considering the risks involved and consulting with the board.
 
Interesting I don't hear this story until I'm on Google+
 
Seems like a big waste of money. $1 billion! Really!? Ridiculous.
 
First of all the deal and the valuation make sense, because no real money was used. They probably said value of the social network is quadratic function of the number of users. Face has ~10x users compared to instagram and hence has 100x the valuation. Then Instagram said they reconize facebook worth 100B and Zuck recognized Instagram worth 1B. No one gets any money until public market decides how much they want to pay for these promisory notes.
 
Its not a big deal

You know this is actually very telling about the behind the scenes at facebook. They are about to go public and are anticipating a huge IPO. Paying a billion dollars for a company in this situation is not really a worry for two reasons.

1. Its not a cash deal! The majority of this deal will be in FB stock.
2. It says a lot about what FB thinks about their own valuation. If you feel that your company is over priced it makes lots of sense financially to over pay for assets when you have the chance. Their stock is not market priced right now but it soon will be. If their IPO opens at 100B and then it makes it way back down to earth you get a good deal. What was a 1Billion in stock today might just be 50 - 60 million two years from now. Smart move!
 
Why Miguel?... there needs to be a place where we can escape from comments like the one Nikola just made.. :-)
 
Its the race to be the next big think in the realm of super enslavement
 
hey i saw this one a cuple of months ago
 
Just think about how Facebook captured revenue. Add strategic demographic marketing to instagram and you have yourself a cash cow.
 
get out while you still can! Too many crazies on FB
 
It cant get greedier than this, paying $1 Billion for a company that is making zero dollars in revenue. How much is $1 Billion worth of Facebook stock really worth ? Well who is smart here ? Mark or the Instagram guy.time will tell. +Matt Acuff could not agree more with you..
S C
 
Pretty bold - all the best
 
He shouldve spent 1 billion making facebook better. He already has all the users he wants. 1b could make some pretty cool mobile apps
 
So Zuck tells the board he changed facebook without their input, welcome to our world. 
 
One million should have built facebook their own picture service a few times over. They have the user base... it doesnt make sense.
 
let me get this right, he is the owner and CEO...f---- them all its his company if thats what he wants to do it his right
 
Fb will go down! They are switching us to stupid timeline, MOST USERS HATE IT!!! BS, SUCKERberg! You are going down!
 
Don't look for user friendly in all products dear.. once u start using the product u get used to it and product becomes friendly on it's own..
 
facebook sucks anyways, google + all the way !
 
Where were all the directors when he created Facebook in the first place? The guy owns freaking Facebook, he needs no directors board. He has beast, a lovely wife, and a pair. Needs no more.
 
Zuckerberg knows its all a game. After all, its not his money. If facebook closed tomorrow he would have enough to live comfortably for generations.
 
Does board has the right to cancel this acquisition?
 
I'm hoping Google+ picks up. The good thing about Google is that they are not dependant on just a social network they have search email maps and so on.
 
zuckerberg is a dumbooooooooooooooo.
 
Gutsiest move I ever saw, Mav.
 
I still think buying Instagram is largely a PR stunt, perhaps the greatest in history... but only History will tell..
 
omfg! he could just download instagram but he bought it for 1 billion.
 
Hi im new so pleas add me some time dont worry i wont bite..HARD.....just kidding
 
The dude has money to blow and tons of it. Shit I should ask him to pay off my school
 
This type of dangerous figure is why I deleted my FB account loooong time ago. He thinks nothing of intangible private property.
 
Another proof that he's a damn lucky bastard and an idiot XD
 
Right now FACEBOOK have authority to do whatever they want....our governments behind thems 100%
 
His company. He can do whatever he wants
 
I don't understand. Someone explain? Why would they purchase instagram when they could just make their own image manipulation tool for Facebook photos? It can't be that hard.
 
You're just jealous you don't have a billion to throw away. :-D
 
+Tom Clarke So the other buyer, don't buy you... or... I'm out of ideas.
 
When Zuck sucks...I would'nt be an investor in Facebook with such kind of dictatorial CEO, neither a member of Facebook board.
 
Doesn't anyone here think that Instagram is VERY popular and a unique way to send geotargeted ads to its users???
 
I hope they get angry and fire him. But then he will pretend to be Steve Jobs and then ruin Steve Job's legacy
 
his arms are small like a tyranosaurus rex
 
+Mike Elgan I've said it from the start... this was Zuck doing two things. Exercising his ego... "I can do what I want, I own 56.9% of this company and will keep control." and chumming the water to create the mindset: "Look, an 18 month old company made $1B! Everyone who works with Facebook gets rich fast.. I want to be part of that!"

Now... my analysis on the $ value. He paid $1B for a company with 30M members of which 80% are likely already FB members... thus only a 6M potential new member/account to sell to gain. He got a photo sharing platform which being generous, I think FB could have easily built and populated to 30M members for $50M or less. That means he just paid $950M for 6M members.

I know I don't need to remind you, but for those who might be considering throwing some money into this IPO. Rosenblatt sold MySpace to Murdoch for $580M, when Murdoch sold it he'd lost about $1B on it. Yahoo bought Bebo for $850M and sold it for $10M. Can you piss-away $1B for NO return when making an acquisition in social media? Yeah, easily and quickly. How big could a FB crash be? How much cash do they really have? How many of the 850M accounts are REAL and active? Until all those figures are public and audited... I'll say one word: ENRON.
 
Billion dollars Ehhh? FML must be nice to throw money like that.
 
Invest in companies that produce goods. With facebook, you would be investing in an advertising company. This is pure folly, long term.
 
He follows instincts and luck follows him !!!
Deal
 
The big probability of getting this into mess is deciding impulsively on things, especially when it comes to money matters
 
The prudence of chasing the Instagram acquisition might be a matter of opinion. But, corporate governance is certainly an issue. A company this size cannot be run like a friendly neighbourhood grocery store. A corporate decision making culture takes time to evolve. And, technology companies do sometimes grow too fast for the evolution of such a culture. Moreover, technology visionaries don't always make good organisation builders. So, maybe, the stakeholders in Facebook have to live with juvenile managerial practices in the board-room for a while.
 
It seems BP is trying to settle the Gulf Coast oil spill, which had an impact on 100,000+ people and businesses, for 7 billion. I thought, 'meh, that is only 7 Instagrams. '
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