In this negotiation between Facebook and Instagram, patience on the part of Mark Zuckerberg paid off big time.
Back on April 9, 2012, the hearts of internet entrepreneurs everywhere must have skipped a beat at the news that Facebook was paying $1 billion in cash and stock to buy Instagram, a San Francisco-based start-up.
Less than two years old, Instagram offered a mobile app that allows users to add effects to their smartphone photos and share them with friends. Though the company had no revenue and employed only about a dozen people, it had experienced a meteoric rise and enjoyed an “almost cult-like following,” according to the New York Times. Its 30 million users (at the time) were uploading more than five million photos a day, though the app was only available on Apple devices. (The app is now cross-device compatible and has reached 1 billion active users as of 2020.)
The acquisition was Facebook’s largest to date and aimed at giving the social network a higher profile on mobile devices. Instagram CEO Kevin Systrom first caught the attention of Facebook founder Mark Zuckerberg in 2004, the Times reports. Impressed by Systrom’s Photobox service, which allows people to send and receive large photo files, Zuckerberg offered him a job – but Systrom, then a sophomore at Stanford University, decided to stay in school.
Systrom’s later creation with Mike Krieger, Instagram, gained instant popularity by allowing users to post their pictures to Twitter. In early 2011, Mr. Zuckerberg expressed interest in purchasing Instagram, but Systrom chose to focus on independent expansion, the Times reports.
A week before the Facebook acquisition, Instagram closed a roughly $50 million financing round with several investors. The financing round valued the photo service at about $500 million, according to the New York Times. Facebook’s purchase a week later doubled that investment value. The momentum and buzz surrounding the financing is likely what compelled Facebook to make its billion-dollar deal, which may have been done in just a few days.
In anticipation of a public offering that could value the company at around $100 billion, Facebook could easily afford to pay Instagram’s steep price tag. Systrom and Zuckerberg stressed that Facebook would keep Instagram running as a separate service, at least for the time being.
For business negotiators, Instagram’s happy ending suggests the importance of striking when the iron is hot, but not a minute before. Focused on allowing their brand and popularity to build, Instagram’s founders avoided the temptation to sell off too soon – and maximized their power at the table when the time came to make a deal.
When in a negotiation are you patient? Where do you think you could improve your negotiation skills?
Originally published in 2012.