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When Facebook acquired Instagram just over six years ago, the social media giant
had only just gotten a handle on mobile after struggling to translate its sprawling
empire of "likes" from what was once an exclusively desktop experience. Far from
representing Facebook simply buying what it didn't want to build, though, the
purchase of Instagram has forever changed how social media users connect with
each other and revolutionized how advertisers tap into those networks.
But turning Facebook into a prolific acquirer of emerging tech wasn't necessarily
founder and CEO Mark Zuckerberg's plan. In his announcement of the Instagram
deal that April—posted, of course, to his own timeline—Zuckerberg said that
Facebook didn't "plan on doing many more of these, if any at all." Meanwhile,
Facebook almost appeared to dismiss Instagram as merely "a fun, popular photo-
sharing app for mobile devices" when it officially announced that the two had struck
an agreement.
In the end, the purchase of Instagram has proven to be a far more visionary
transaction than anyone likely anticipated at the time. The product that Facebook
purchased is much more than just another trendy app—it's become essential to the
social lives of millions and an increasingly slick conduit for advertisers. Zuckerberg &
Co. certainly have gone on to do more M&A, in part to fend off further competition
while wielding Instagram like a cudgel over the better part of the past two years to
beat back upstarts like Snapchat.
What's more, when Facebook struck the deal, it had yet to go public, meaning the
value of the stock component of the cash-and-stock transaction was effectively up
in the air until after May 18 of that year. And, lest anyone forget, the IPO didn't
exactly go off without a hitch.
Facebook offered $300 million in cash for Instagram along with nearly 23 million
shares, making the transaction worth $1 billion up front. But the social media giant's
stock dropped roughly 43% in the months following its debut on the public markets,
meaning that by the time the deal closed, it looked like Instagram's founders Kevin
Systrom and Mike Krieger had left $285 million on the table.
Instagram now generates almost one out of every four dollars of Facebook's roughly
$20 billion in annual ad revenue, bringing in over $1 billion on a quarterly basis. Not
bad considering that for the quarter it struck the deal, Facebook reported just $1.2
billion on the top line.
But things almost didn't turn out this way for Facebook or Instagram. Just three
weeks before it was announced that Instagram had accepted Zuckerberg's $1 billion
offer, the company—not coincidentally, it's been said—shot down a $525 million bid
from Twitter. Instagram was at that time integrated into Twitter much as it is today
with Facebook and, with only 13 employees, that initial offer must have been
tempting for a startup that had reached a subscriber base of some 30 million
monthly active users about 18 months after its launch in 2010.
In the years since, some have argued, most notably Ben Thompson, founder of
Stratechery, that Facebook gained unfair scale with the deal. One's left wondering,
though, if that would have been the case had Instagram gone to Twitter instead, and
whether Instagram would've achieved the reach its current scale.
For Nick Adler, an investor and talent manager at Cashmere Agency, as part of
Facebook, Instagram has become something like a magazine—a glossy
representation of the highly curated self. And it's that dynamic which has made
Instagram not only Facebook's most successful acquisition to date, but also why so
much of the company's lucrative mobile ad business is bound up with its future as
the leading force behind the budding business of influencer marketing.
Instagram is also the asset that has perhaps the least taint from Facebook's recent
troubles attached to it. And that alone could prove priceless going forward, with
Zuckerberg's longtime lieutenant Sheryl Sandberg, alongside Twitter CEO Jack
Dorsey, testifying last week before Congress about the circulation of misinformation
on their platforms.
And if that scrutiny, which could result in greater government regulation of the social
media giants, isn't enough, a recent Pew survey found that 26% of US users of
Facebook have deleted the app from their phones in the past year, eating into the
hard-won gains made in mobile down the years and potentially the ad dollars that
have followed—gains that Facebook might nevertheless preserve thanks to its
purchase of Instagram.
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