Metaphorically speaking, earlier this week Facebook decided to check Instagram’s profile. Facebook was interested in Instagram and probably poked the company, trying to break the ice. After a few messages and wall posts, the two companies decided to update their relationship status from “it’s complicated” to “married.” That post was promptly liked by Facebook one billion times.
Literally speaking, Facebook completed their $1 billion acquisition of Instagram, a mobile photo-sharing program.
The move has sent shockwaves through the business community and the tech sector. Instagram has 13 employees and is 18 months old. Facebook is one of the most powerful companies on the planet. Was there a need for Facebook to acquire the company? And why was it valued at $1 billion?
There are a couple of theories for the acquisition. First, the way technology is trending towards mobile apps, some think Facebook’s purchase of Instagram was a power move – taking out the competition before you get taken out by it. Along the same lines, Facebook’s current mobile app has taken much criticism for glitches and overall performance, whereas Instagram’s mobile app is lauded by critics. Both reasons may have pushed Facebook to value the small start-up so highly.
Another reason is the 13 employees working at Instagram. Facebook’s CEO Mark Zuckerberg indicated he wants to “learn from Instagram’s experience” to better his company’s products. As Instagram’s stunning rise to prominence indicates, it certainly has some talented people on staff. Bringing them on to the Facebook team is a coup for Zuckerberg and co.
Though it is yet to be seen, there will surely be some major developments (and new products) offered by Facebook and Instagram because of this acquisition. One thing that is known is that a $1 billion business transaction doesn’t just happen through a poke, or a like or a status update.
Long hours and plenty of negotiations went into a deal of this magnitude. Experienced professionals have to be brought in to assure that the purchase is thoroughly completed without any legal or financial errors, and that the transition for both staff and company alike is as smooth as possible.
Source: Mashable, “Why Instagram Was Worth $1 Billion to Facebook,” Emily Price, April 12, 2012