On Tuesday morning, one of the news stories to kick things off included Facebook’s $1 billion acquisition of Instagram. The announcement came through Facebook CEO Mark Zuckerberg’s Facebook page on Monday and before you knew it, the news was everywhere.
As the numerous stories evolve about it, I can’t help but think there’s something negative or shady about this transaction. I don’t think I’m alone in this thinking. Here’s a few other thoughts on what this transaction could mean for Facebook and Instagram.
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Facebook Could Gain Entry into China
Instagram has a strong following in China and so far, it doesn’t appear to be censored. According to The New Yorker, the site has gained popularity from pictures of China’s cityscapes, architecture and those infamous water-and-bridge scenes enhanced by Instagram’s app effects. Users can share pictures with one another, tag them and then include search features.
Instagram has this capability thanks to its relationship with the Chinese microblogging site, Sina Weibo. Users are also able to post Instragram photos to to their feeds.
For a company such as Facebook, China hasn’t exactly rolled out the welcome mat for social media websites but now with its foot in the door through Instagram thanks to founder and CEO Kevin Systrom, does this give the Facebook a much-desired entry or will censorship begin once the Facebook-Instagram deal closes?
Instagram also doesn’t have a China office but it has expressed in doing so. Do they now forge ahead with plans?
Instagram Sells Out for the Cash
While Facebook has said Instagram will run independently, with the $1 billion sale to Facebook, Instagram’s founds and owners stand to make a pretty penny. The two-year old company has Systrom, who owns 40 percent, bringing home $400 million pre-tax from the sale. Co-founder Mike Krieger could see a $100 million payday from his 10 percent stake.
Pretty good for a company without a clear revenue model.
As Wired pointed out, Instagram’s investors will also get hefty check. Benchmark Capital, which managed Instagram’s 2011 $7 million Series A offering, will see around $180 million from its 18 percent holding while venture capital firms, Andreessen Horowitz and Baseline Ventures, could net approximately $100 million with their 10 percent stake.
And the balance of the transaction–last but not least–$100 million (10 percent) will go to Instagram’s alleged nine employees. They supposedly will remain under the new company.
Did Instagram sell out to the Man?
Facebook Does Some Sneaky PR
When I read that Facebook made the Instagram announcement via Zuckerberg’s Facebook page, I thought to myself…hmm..that seems odd for a company about to go public. Granted it’s still a private company, why wasn’t the news made in a more traditional manner, like a press release or on its website? Shouldn’t the company’s investor relations team be involved?
I surfed around to find Facebook’s corporate website and well, they don’t really have one. If you find it, let me know.
But I thought, if Facebook was already public, it wouldn’t have been allowed to make the announcement this way for numerous reasons. Was this announcement made with a subtle intent for insider trading on the news? Don’t most private companies still make public news announcements?
Even Instagram didn’t list the announcement on its website on either Monday or Tuesday.
I walked away thinking maybe this is how Facebook will conduct its transactions and it might not be a good thing.
It also made think of Groupon and its lack of success after going public. Will Facebook face the same fate?