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What made Facebook chief Mark Zuckerberg buy Instagram? Leaked emails still make for fascinating reading
Mark Zuckerberg bought Instagram when everyone was saying it was too pricey and would turn out bad. But he did it and the rest is history.
Facebook co-founder Mark Zuckerberg has taken on much risk to bet on a number of deals after having successfully established social network powerhouse Facebook. Notably, Zuckerberg bought WhatsApp, and the app is arguably on almost every smartphone on the planet. However, an even more controversial and risky bet was on Instagram and many analysts at that time had cast doubt about whether it made business sense to buy this video and photo sharing app for $1 billion in 2012.
However, since then Instagram has gone from strength to strength. At that time, it had an active user-base of 30 million, and now, as of 2024, it has rocketed to 2 billion globally. So, what was the secret behind Zuckerberg going against the grain to purchase this power-house app whose valuation is currently at $500 bn?
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The thoughts that went behind the acquisition were first leaked via emails in 2020, but they are going viral again as they provide a window into the insight that is required while going for a massive acquisition that does not make too much sense except to the person, and his inside team, who are actually gunning for it.
That these thoughts are still current and hold huge amount of value is clear from the fact that it made Wharton School’s Professor Paul Nary jump on the viral bandwagon and post this on X, “Fascinating thread illustrating real world/real time thinking about corporate (not just business) strategy and a potential acquisition that turns out to be transformative for Facebook $META. Very cool.”
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The thought behind Zuckerberg’s Instagram takeover
There was doubt for sure, plenty of it. In his email to the then Facebook CFO David Ebersman, Zuckerberg wrote, “One of the business questions I have been thinking about recently is how much we should be willing to pay to acquire mobile app companies like Instagram...These companies have the properties where they have millions of users (up to about 20m at the moment for Instagram), fast growth, a small team (10-25 employees) and no revenue.”
However, small they may be, but the challenge that they posed to Facebook was quite big as Zuckerberg acknowledged. He said, "The businesses are nascent but the networks are established, the brands are already meaningful and if they grow to a large scale they could be very disruptive to us.”
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So, what happens if they do not want to sell, how do you actually approach them? Make them an offer they simply cannot refuse. Zuckerberg further explained, “These entrepreneurs don't want to sell (largely inspired our success), but at a high enough price -- like $500m or $1b -- they'd have to consider it…”
And the driving force behind such a deal for Facebook even at an exorbitant cost? He wrote, “…we're vulnerable in mobile..."
