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Zuckerberg Made Instagram Deal Alone

Posted by samzenpus on from the going-solo dept.

benfrog writes "According to the Wall Street Journal, Facebook's Board of Directors was all but out of the picture when Mark Zuckerberg struck the $1 billion deal to purchase Instagram, the yet-profitless photo-sharing service. From the article: 'It was a remarkably speedy three-day path to a deal for Facebook—a young company taking pains to portray itself as blue-chip ahead of its initial public offering of stock in a few weeks that could value it at up to $100 billion. Companies generally prefer to bring in ranks of lawyers and bankers to scrutinize a deal before proceeding, a process that can eat up days or weeks. Mr. Zuckerberg ditched all that. By the time Facebook's board was brought in, the deal was all but done. The board, according to one person familiar with the matter, 'Was told, not consulted.'"

38 of 307 comments (clear)

  1. and this is how... by mozumder · · Score: 5, Insightful

    bubbles begin: when non-financiers with access to lots of money decide to make financial decisions.

    1. Re:and this is how... by Anonymous Coward · · Score: 5, Insightful

      Ya, good thing it wasn't experienced financiers making financial decisions regarding mortgage derivatives that caused a huge housing bubble and subsequent destruction of the economy a few years ago.

    2. Re:and this is how... by TWX · · Score: 5, Interesting

      I don't see how your two posts are the same thing.

      Market bubbles happen when something takes on an unreasonable value and continues to grow, people see that it grows and jump on, causing further growth, until there aren't enough new entrants to sustain the expected and required growth. Sometimes the subject of the transaction is something of actual value (property, raw materials), other times it's something of only representative value (Flowers, dotcom companies). A few investors can help the bubble grow, but they certainly aren't the cause. If anyone can be blamed, it's those who sensationalize and provide positive news coverage to bubbles, causing more people to join who might not have done so otherwise.

      I saw signs of the housing bubble in 2002 when houses that I felt weren't worthy started crossing the $150,000 mark in this market. When we got married in 2007 we chose not to buy another house, thank goodness. We instead did so in 2010-2011 after the market crashed and got a short-sale for about half of what was owed on it. Our only real lament is not selling the old house when prices seemed ridiculous and renting for a couple of years. We could have tripled our square footage and had no loan if we had done so.

      As for the dotcom bubble, that happened because a lot of people who didn't understand technology thought that those who claimed to had something of value, and thousands of companies that had no real product got money poured at them by greedy people who expected to be the next Bill Gates. Fast forward to now, and Zuckerberg is already a rich man, and his company is strong at the moment, so his acquisition isn't really the same thing.

      --
      Do not look into laser with remaining eye.
    3. Re:and this is how... by jhoegl · · Score: 4, Insightful

      Although you are correct and the OPs post is pretty dumb, we are in another tech bubble.
      It started when the "cloud" stuff started happening.
      So... just be careful.

    4. Re:and this is how... by Guppy06 · · Score: 4, Insightful

      and his company is strong at the moment

      So far as we know. Hell, if the company's own board is in the dark about what's happening...

    5. Re:and this is how... by TWX · · Score: 4, Interesting

      Call it peace of mind.

      Not having a loan also means having the option of having more disposable income when raising children, or being able to have a work arrangement more compatible with personally raising kids. It also means that if one is absolutely fed up of one's job, one has the choice of leaving when one doesn't have to worry about where to live.

      Our current loan is financed at 3.75%. We're well aware of the benefits of having a very inexpensive loan. But, even if we had the cash to invest or to pay a chunk of the loan off with, we'd seek to "recast" the mortgage to have both the lion's share paid and to have ridiculously low monthly payments, instead of investing, because owning a home is a sure thing, while investing certainly is not. If anything, we could buy third property and rent that property out too, like we did our old home, and make even more money. But, we're not worried about that, and since we're not terribly greedy people, we're not looking for every possible avenue to make money.

      --
      Do not look into laser with remaining eye.
    6. Re:and this is how... by TWX · · Score: 5, Insightful

      I don't think that the Cloud stuff is a bubble so much as it's a fad way of renaming existing technologies under one umbrella label.

      You also have something different in Cloud, in that businesses actually have a product if they're offering Cloud services, whereas dotcom companies generally did not.

      --
      Do not look into laser with remaining eye.
    7. Re:and this is how... by Nimey · · Score: 5, Insightful

      Horseshit. The quants may have made it possible, but it was the beancounters higher up who made the decisions.

      --
      Hail Eris, full of mischief...

      E pluribus sanguinem
    8. Re:and this is how... by StikyPad · · Score: 4, Insightful

      Ah yes, blame the nerds. That's how it goes, right? Hackers steal your money and government secrets, nerds will shoot up your school, and they smell all funny to boot. Except it's *criminals* who will do those things, not hackers and nerds. When someone gets arrested for robbing a bank, you don't say "A construction worker held up a bank." It's no different here, and labeling them just feeds a stereotype.

      And while derivatives may have been invented by quantitative analysts (quants), they're not inherently risky -- they're just a vehicle. It's the type and diversity of securities packaged in the derivatives that determines the risk. The bankers knew full well what was getting packaged and why. The quants just gave them the "how." I'm not saying the soldiers aren't responsible for the consequences of following orders, but there's plenty of blame to go around, and ultimately those in command should be (or have been) held most responsible, since they are. That is, allegedly, why they get paid the big bucks.

      --
      https://www.eff.org/https-everywhere
    9. Re:and this is how... by khendron · · Score: 4, Funny

      No no no! A cloud bubble DOUBLE rainbow!

      --
      Life is like a web application. Sometime you need cookies just to get by.
    10. Re:and this is how... by V-similitude · · Score: 5, Insightful

      We are not in another tech bubble. There are certainly isolated instances of overvaluation, but overall, there isn't a consistent pattern of it. Take Groupon for instance. It's almost certainly headed for failure, but people have pretty much already caught on to that and the stock has already receded from its IPO. In fact, it never really enjoyed a large and long stock burst that you'd expect in a bubble. Pandora is also well below its IPO. Facebook, while well overvalued at $100B in my opinion, seems to have a solid revenue and profit stream and isn't particularly indicative of a bubble (though buying Instagram at $1B certainly doesn't make me want to be an investor, long term).

      I think there was some realistic fear of a tech bubble back before any of these "sexy" IPOs actually took place and people seemed overly eager for them. But with a little bit of bubble-fear from the media, people seem to have stepped back and are respecting true valuations again . . . more or less.

      And yeah, Zuckerberg making a dumb (or more probably, cronyism-based) decision for his company is neither here nor there.

    11. Re:and this is how... by Beeftopia · · Score: 5, Informative

      Bad loans were the core of the housing bubble. To understand the reason behind it all, you've gotta ask yourself one question: "Why would lenders make loans that are unlikely to be repaid?" Answering that question leads to the answer behind the bubble. It was a bubble in supposedly AAA-rated mortgage debt.

      Here's how it worked:
      1) Securitization of mortgages into MBS (mortgage-backed securities).
      2) Banks made money from selling the loans to securitizers and getting them off their books, not keeping them and collecting interest.
      3) Demand for these securities skyrocketed, as they were thought to be safe and reliable income streams.
      3) This led to the utter deterioration of loan quality, as banks basically just needed to get warm bodies to make loans to, create the loan and sell it. You started seeing things like NINJA loans (No Income No Job or Assets - NINJA) and option ARM loans made to risky borrowers. All included in securities rated AAA.
      4) Investment companies bought these loans, ratings agencies stamped a AAA rating on them and the securities were then sold off. Buyers hungry for safe and reliable high interest returns couldn't get enough of it. Thus a bubble was formed.

      Basically, for mortgage originators, it was like printing monopoly money, and then turning it in for actual currency. When borrowers started defaulting en masse, the whole house of cards came tumbling down.

      Reading recommendations:
      1) The Economist magazine cover story, "House of Cards", from 2003. Check out the multiple links to the separate sub-stories that make up the issue under the "In this special report" heading.

      Viewing recommendations:
      1) The Inside Job - Oscar-winning documentary on the financial crisis.
      2) William K. Black interviewed on Bill Moyers.

    12. Re:and this is how... by ThorGod · · Score: 4, Interesting

      I think GP was making a joke. "so on and so forth" is kind of an indicator.

      Bingo! I meant that as half sarcastic and half serious. My understanding is that "some people" took some theoretical concepts and applied them to overly optimistic data. (Amongst all the other problems, and simplified terribly.) This isn't a nerds/business people thing...if you use data that thinks real estate can only go up then how is it ever going to tell you real estate otherwise?

      --
      PS: I don't reply to ACs.
    13. Re:and this is how... by oxdas · · Score: 5, Insightful

      The politicians, funded by the investment bankers, made it possible. It was a really bad idea to tie investment banking to retail banking in the 1920's and a bad idea today. The investment bankers created investments out of the mortgage pools and sold them off by risk (with the top being AAA). This meant that more groups could buy shoddy mortgages (some organizations required AAA investments) and get a higher return. More money flooding into the system meant pressure to make more loans (and more fees). Without any vested interest in the loans (the banks were just going to sell them anyway), oversight became lax. Once that wall was broken down between investment and retail banking in the 1990's, bubbles with traditional retail banking assets were inevitable.

      I worked for a large finance company during that time (just a harmless middle manager, so don't blame me). We had all our clients money market assets in "AAA" mortgage backed securities. We made 6% and paid 0.25% return to our clients. Life was good (until it all came crashing down). So, I guess greed is what really made it possible.

    14. Re:and this is how... by V-similitude · · Score: 4, Insightful

      And of course, you can make the same returns by getting lucky at the craps table . . . This kind of investing tends to be basically gambling (not saying all the time, but most of the time for most people). But good for you in this particular instance. Wonder what your 5 year, or 30 year returns will be. (Also, it's a 900% gain, not 1000%.)

    15. Re:and this is how... by TWX · · Score: 4, Interesting

      Funny that, isn't it?

      There are very few people who have any real wealth besides what's on paper. Even those in illegal economies like drug dealers have their money stored as paper. Not many have their wealth in tangible goods, and many who have tangible goods have luxury items like diamonds.

      Take away all of the paper and all of the records instantly and I'd guess that 99.9999% of the population would be within spitting distance of each other, wealth-wise. Ironically, farmers would probably be the best off, if they have equipment for production and land.

      --
      Do not look into laser with remaining eye.
    16. Re:and this is how... by TheRaven64 · · Score: 5, Interesting

      Ten years ago, people were deploying exactly the same technologies on the back end (VM instances that were live migrated, spawned and destroyed on demand, and - where needed - fault tolerant using redundant images kept in sync on separate instances). Back then, it was called grid computing, not cloud computing. Twenty years earlier, almost the same thing was called a mainframe, or a mainframe cluster if you wanted your cloud to encompass multiple sites.

      The only real change with the cloud is that now we're doing the same things but with cheap commodity hardware and cheap commodity software. For example, fault tolerance is now part of the standard Xen distribution, but if you wanted to roll it out a decade ago you needed to pay a company like Marathon a lot of money for their hypervisor. If you wanted to roll it out two decades ago, you bought a very expensive VMS system from DEC / Digital (later HP). Now, you can have two (or more) instances of the same VM running on separate sub-$1000 computers, and if one computer dies then people using it don't notice. Total cost of deployment is a couple of thousand dollars of equipment and a couple of hours of time.

      It's the same thing with a lot of other technologies: it's not that they're especially novel, it's that now you can do something everywhere you want to, where previously you could only afford to do it everywhere you absolutely needed to.

      --
      I am TheRaven on Soylent News
  2. Was told, not consulted. by HermDog · · Score: 5, Funny

    Pretty much how we all got Timeline.

    --
    JADBP
    1. Re:Was told, not consulted. by drpimp · · Score: 5, Funny

      Dude this is /. we all know you only have like 4 friends ... not really a good sample size.

      --
      -- Brought to you by Carl's JR
    2. Re:Was told, not consulted. by gstrickler · · Score: 5, Insightful

      It's not a bad idea, but it's a terrible implementation. It should be a textbook example of what not to do in the field of information presentation. It puts form over function, makes it difficult to read, hard to find info, and makes terrible use of screen space.

      Aside from that, it's just fine.

      --
      make imaginary.friends COUNT=100 VISIBLE=false
    3. Re:Was told, not consulted. by cffrost · · Score: 5, Insightful

      If you [...] on [...] Facebook [...] you get what you deserve.

      Here's a succinct version with a wider margin of safety.

      --
      Thank you, Edward Snowden.

      "Arguments from authority are worthless." —Carl Sagan
  3. I'm confused by sir_eccles · · Score: 5, Funny

    Why did it take 3 days for the other guys to say yes to $1bn?

    1. Re:I'm confused by jjohnson · · Score: 5, Funny

      Because the minute someone offers you $1b, you think you're worth 1.1.

      --
      Anyone who loves or hates any language, platform, or manufacturer, doesn't know what they're talking about.
    2. Re:I'm confused by icebraining · · Score: 5, Insightful

      Actually,

      Negotiating mostly on his own, Mr. Zuckerberg had fielded Mr. Systrom's opening number, $2 billion

      Two billion dollars for a photo sharing social network with no business model /facepalm.

      --
      Dilbert RSS feed
    3. Re:I'm confused by Jafafa+Hots · · Score: 4, Insightful

      Couldn't Facebook "roll their own" photo-sharing service for less than a billion dollars?

      How in the hell did obvious ideas backed by a few weeks of coding become worth billions?

      --
      This space available.
    4. Re:I'm confused by TWX · · Score: 4, Insightful

      MS-DOS was worth billions of dollars, and it was a hackjob because the creator of CP/M wouldn't give IBM the time of day and they needed something NOW.

      Google was a research project that proved phenomenonally successful yet started out simply.

      Apple was from a few hardware hackers building illegal devices in a garage in the suburbs.

      You don't know where the next killer app will come from. In this case, if Instagram was the first company to do this truly correctly in the technical sense, and if Facebook wanted this technology NOW, then we're back to the same scenario as a bunch of hackers in New Mexico ready to fulfill the needs of a giant company from Armonk.

      --
      Do not look into laser with remaining eye.
    5. Re:I'm confused by Anonymous Coward · · Score: 5, Insightful

      This acquisition wasn't about the technology, it was about a desirable user population interacting on something that was not Facebook.

      If you're looking for a historical analogy, Yahoo buying GeoCities for billions in stock is probably a good fit.

    6. Re:I'm confused by crafty.munchkin · · Score: 5, Interesting
      Actually, he's buying the GPS data attached to each and every photo taken via Instagram, which will enable him to better target advertisements for places nearby. What appears to be no business model is actually a very clever one - encourage users to take photo's with their iPhone/Android, apply a stupid sepia tone to make it look "classic" and in the process, tell the service where they are down to a GPS co-ordinate, so that companies in the area can have their products advertised to the users.

      Since Facebook (like Google) is an advertising company, this makes a lot of sense.

      --
      ... wait, what?
    7. Re:I'm confused by Jafafa+Hots · · Score: 4, Insightful

      And look how well that went...

      --
      This space available.
  4. Not buying into Facebook IPO by Anonymous Coward · · Score: 5, Insightful

    Mr. Z seems to be a bit immature. Maybe this was an amazingly clever purchase, but it strikes me as a childish exercise in spending. Assuming he retains control of FB after the IPO I don't expect that the company will fare well or spend cash well. IMHO..

    1. Re:Not buying into Facebook IPO by chrb · · Score: 4, Insightful

      Business leaders think that Zuckerberg is some kind of genius tech visionary because of the success of Facebook. That's why he gets invited to have dinner with the President, and to talk at the World Economic Forum...

      There is another hypothesis: he got lucky, he happened to be in the right place, at the right time, doing the right things.

      Time will tell...

  5. Profitless? by NovaSupreme · · Score: 5, Interesting

    >> Instagram, the yet-profitless photo-sharing service
    Make that revenue-less!

    Their whole pitch on making money is presented here in its entirety:
    ". There will be opportunities for consumers to buy extra add-ons like special filters, etc. "
    So, folks, that's it - special filters, etc. Magical words.

  6. Re:Read the card... by readandburn · · Score: 4, Insightful

    CEO and Majority Shareholder, bitch.

    Fixed that for you.

  7. Standing in awe by caffemacchiavelli · · Score: 5, Funny

    While I'm still unsure how they got their investors to accept a $500M valuation (Series B, was it?), going into a meeting thinking "Yeah, $2B for a popular photo sharing app platform sounds about right" must take some cojones. I probably couldn't sell Instagram for $200M, I wouldn't even know where to start.
    "So, we have this platform and our users are totally committed to the experience and not just using it because it's hip...and we all know that social media startups tend to stay popular and don't crash after a year or two...and crap, we can totally monetize that thing, like print photos on mugs and stuff...that's like an instant $80M/year right there, minus the cost of the mugs, of course. So, whaddaya say, two billion?"

    1. Re:Standing in awe by Anonymous Coward · · Score: 4, Interesting

      Facebook is already one of the best software developers in the world.

      1. They "compile" PHP into C++ and then into assembly
      2. Each update to their software requires propagation of a 1.5GB binary blob
      3. ( 2 ) was causing so much trouble that they implemented an internal Bit Torrent system by which the servers pull the blob.
      4. Still, several per cent of servers fail to load the new software image on each deployment and have to be manually updated.
      5. The ( unitary ) release manager has a karma rating system by which to punish developers who make mistakes. This can be "corrected" by bribing him with liquor and cake.

      You still think they are one of the best?

  8. What will do to Facebook's future IPO? by CaptSwifty · · Score: 4, Informative

    What will this do to Facebook's future IPO when potential investors see a "maverick" CEO who does what he wants without consulting the board? I can't imagine a lot of fund managers will like the idea of putting billions of dollars at stake with someone like Zuckerberg spending huge sums of money without getting input from people who already own a large percentage of the company.

    How does Zuckerberg own only 28% of the stock but have 57% of the voting rights? Are there really that many non-voting shareholders?

  9. Re:Personal Deal by FsG · · Score: 4, Insightful

    I figured the same thing. At least one of Instagram's employees, Philip McAllister, was at Gowalla when it was picked up by Facebook less than 6 months ago.

    That guy might be the luckiest bastard in the world, having worked for 2 tiny companies whose only significant act was getting acquired by Facebook. On the other hand, Zuckerberg could just be funneling company money to friends?

    --
    I made a PHP/MySQL library that prevents SQL injection & makes coding easier!
  10. Instagram's Kevin Systrom's Reaction by bhlowe · · Score: 4, Funny
    Kevin Systrom recently sold Instagram to Facebook for a billion dollars and this is how he feels about the sale:

    Here is what he had to say about it. .