There has been a lot of hand wringing in the press about Facebook’s deal to buy the Bay Area startup Instagram for $1 billion, almost what the New York Times Company is valued at. Mark Zuckerberg, founder and still principal owner of Facebook, negotiated the deal with Kevin Systrom of Instagram, which has 13 employees and zero revenue. People are sniping at Zuckerberg because he did the deal over a weekend without informing his Board of Directors. But in the fast moving world of social media he saw a strategic threat to his $100 billion dollar enterprise, because his users wanted to move photos easily on smartphones, and he had a clunky application to do it.
Systrom of Instagram, who owns 45% of his company, knew he had a piece that Zuckerberg coveted, even if he was a speck. The two guys knew each other from Palo Alto networking. The entire deal was negotiated in Zuckerberg’s refurbished old house, very much the way Steve Jobs once did it at his home. Systrom supposedly said that his company was worth 2% of the value of Facebook. He ultimately settled for 1%, or $1 billion for his “revenue-less” company.
I find the story absolutely compelling on several fronts. Zuckerberg understood the potential threat of Systrom selling to rival Google or doing what he had done himself, going it alone. Systrom had strong venture capital partners behind him, so Zuckerberg knew he could not intimidate him. Before Facebook goes public he can still run the company like a private business, even with a billion dollar deal, and he can thumb his nose at the investment bankers and feel secure. Zuckerberg must be both enormously cocky and a little paranoid to pay such a sum to a startup begun in 2010.
This kid Zuckerberg is remarkable to have learned so many lessons about business on the fly. And he knows enough to know what he doesn’t know and pay what it costs to fill the gaps at Facebook.
Question: Would you vote for Romney, even if he has no discernible “core beliefs” other than desperately wanting to be President?