Acquisition truths - Facebook/Instagram
So Facebook laid down cash and stock worth $1Billion to buy Instagram. In this world we live in the following can be true:
1. $1Billion is a ridiculous amount of money for a 15 person start-up with no revenue
2. Facebook could have copied much of Instagram’s work and saved a lot of money
3. Technology companies seem to have lost faith in internal development to some extent
4. There was likely some competition to buy Instagram
5. As Facebook is growing so fast and they will IPO soon, they most likely made the right decision in buying Instagram for $1Billion
Thing is, shareholders/owners are fairly rational. They tend to agree on what is right to maximise value with some fairly near term horizon (i.e. 12-24 months). No shareholder likes dilution or less cash unless there is a reason for it. A number of strategy discussions would have shown, to keep building the picture upload story AND strengthen Facebook’s mobile position, Instagram were a fast growing threat…Eliminate that threat before an IPO before it becomes a viral monster hit.
Now, I’ve been around a while ;) I remember Cisco paying $4Billion for Stratacom, no way it was worth that, far too much etc. It became the voice/data platform for Cisco which to some extent explains why “24” has Cisco IP phones…Some crazy prices are paid because the feeling is it makes sense in the long term, that’s what has happened here. Simple.