When we first watched this movie, we thought that they were just geeks with outstanding and impossible dreams. Today Facebook is approaching a 100B valuation, so Justin Timberlake, aka Sean Parker, was right. This is just another example that supports the instance that through technology and creativity we are able to build huge businesses that are constantly changing our geeky experiences. At this moment, this seems very common in California, where great ideas and startups arise every day.
However what it is not common is the acquisition of a small and tiny startup for 1B dollars evaluation. Instagram was acquired on Monday by Facebook for 1B of dollars in cash and stocks. Is this possible? Yes, Mark Zuckerberg decided that it was time to increase Facebook’s presence in the mobile market. Although Facebook’s users use the app in an addictive way, Facebook lacked something, the ability to substitute a status update with a photo and the ability to custom and publish it instantly on several services.
Instagram, which now has two years, was first developed on the iPhone. After getting almost 25,000 users in the first day, it soon spread all over the word, making it one of the most used free apps on the Apple Store. The simplicity and the interactivity of this app made it incredible addictive and showed us how important and interesting pictures can be. Another key factor that helped the interactivity of Instagram was the internal social network, based on the Twitter’s model; so users are able to follow and be followed by other users.
With this terrific growth in just two years, the Instragram’s team thought it was the right moment to develop an Android version. When they released the app a few weeks ago it was downloaded 1M times in less than 24 hours, making it one of the most downloaded app in a single day ever. By englarging its population Instagram was also ready to take the next step with a 50 million round in order to expand and grow the company with the aim to improve its product in the best way.
On Thursday 5th of April, Instagram received a 50 million round from several VC, which jumped its valuation to 500 million dollars. A great evaluation for an app with 13 employees and with just two years of working. The real plan was to keep the company growing and make the Instagram experience more engaging day by day. This was the vision of Key Systrom, CEO and Founder of Instagram, who was pursuing his dream to develop something special related to photography.
However Kevin Systrom had to change his plans after receiving a 1B offer from Facebook. As many reporters have said, this was an unexpected behavior from Facebook, which didn’t seem interested at all and didn’t stop the round of investing. What it is really interesting is the evaluation that Facebook gave to the app. After the round, Instagram was valuated 500 million of dollars, but Facebook offered the double.
Many people supported what Facebook did saying that they invested 1% of its company in the first threat to Facebook on mobile platform. Other people said that this had been a great acquisition. On a different wave, others have said that the price was too far away from the real valuation and that this was a bad investment.
In my personal opinion I really don’t see the reason behind this move. Facebook is preparing an IPO, they are expanding day by day and further they have tons of user interactions on mobile platforms. Why should Facebook buy another company for 1B of dollars? Instagram was not Facebook’s first threat, for the simple fact that Instagram worked on a different level. The product they were developing was far away to what Facebook is and will be.
Moreover with 3,000+ employees and hundreds of engineers you can do whatever you want without buying a startup with that evaluation. Instead you could invest a quarter of that money to perform what you lack on mobile devices. They simply bought a company for the double of its value and expected to do something with it.
Two interesting factors make the deal completely crazy. First, Instagram has a team of 13 employees, which makes about 76 million of dollars per employee. Second, this app didn’t have any revenue and any business model. After two years they hadn’t figured out how to make money yet. This is really astonishing for a 40 million users social network.
I still don’t understand why Instagram accepted the deal. They had more than 30 million users on iOS and they were expanding incredibly well on Android with an outstanding evaluation of half a billion. What Kevin Systrom could do was to keep going this project which is amazing without selling it to the most powerful company in the social networking world.
With these statistics they could go wherever they wanted to go just with the 50 million dollars deal.
- 430K+ on Android Waiting List
- 30 million+ Registered Users
- 1 billion+ Photos Uploaded
- 5 million+ Photos Per Day
- 575 Likes Per Second
- 81 Comments Per Second
A Billion Dollar Is Not Cool
A billion dollar valuation is not cool, when you have the capacity of reaching a better valuation. Furthermore money don’t play a big role in the game, because you already have a good and well valuated stack of your company and your valuation would have probably increased in the next years. I am not a wizard, I can not see what Kevin Systrom thought, but this could be the greatest intuition of all time or at the same time the worst.
I just hope that Facebook is not going to screw the whole company. The last thing that we can do is to wish good luck to Kevin Systrom, one of the best entrepreneurs of the last years, and his extraordinary team.