Facebook bought Instagram on April 9th, 2012. However, legally the deal was only completed a few months later when the Federal Trade Commission in the US approved of the trade.
Why did Facebook buy Instagram?
From a business standpoint, we can see a couple of reasons
- Fear of competition – better to buy rather than to spend and compete with the risk of losing.
- Huge upside – Instagram was growing at a faster rate than even Facebook ever was.
- Great merging possibilities – Instagram would help Facebook grow as a brand and as a business.
- Experiments ground – Facebook could test out some features (especially camera-related) on the app before rolling it out on their own platform.
For how much was Instagram bought?
Facebook bought Instagram for 1 billion USD. The deal payout was divided into 300 million USD in cash and the rest was paid in Facebook stock because Facebook went public just about at the same time.
It is calculated that the co-founder of Instagram Kevin Systrom gained around 400 million USD just from this deal.
Why didn’t Facebook pay more for Instagram?
Because at the time it was one of the largest purchases in the social media market. You have to understand that Instagram was valued at 500 million USD not too long before Facebook paid double of that.
Of course nowadays Instagram is worth hundreds of billions dollars, but it wasn’t nearly as valuable back then.
Why didn’t Instagram remain independent?
It’s hard to say because no one apart from the co-founders can really answer these questions. But common sense indicates three major co-relating benefits of this deal:
- Eliminating the competition – Facebook would really probably try to throw their glove at Instagram by launching a competing app sometime in the future. It would be a very tough competitor. Facebook was working on the Facebook Camera app during this time.
- Flexible terms – even though now owned by Facebook, Instagram is still an independent operation which does most of its development individually and separately from Facebook.
- A lot of cash – would you turn down 300 million in cash and 700 million in Facebook stock? Probably not.
Was the purchase of Instagram by Facebook a breach of anti-monopoly laws?
Both the FTC in the USA and the corresponding UK agency ruled that this purchase was not against anti-competition rules and/or laws.
Is the purchase of Instagram the best bid Facebook ever made?
Probably so. Considering the fact Instagram is worth somewhere around 200 billion US dollars, their investment brought in a 200:1 return over 8 years. Divided over time, that’s 1200% every year or almost 7% each day… These are ridiculous numbers.
If we compare Whatsapp, Facebook bought it in 2014 for 19 billion USD. It is now worth around 50 billion US dollars meaning the value increase is somewhere between 2.5 and 2.7:1. It’s still an amazing investment but it’s nowhere close to the grandness of the Instagram purchase.