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pincuszuckerberg
Summary:

Past one month has been interesting, to put it mildly. Facebook snapped up Instagram for $1 billion and Zynga lookout OMGPop for $200 million However, here are three key lessons (and takeaways) between these two deals and what they say about both these companies.

The past one month has been interesting, to put it mildly. Facebook made an unprecedented move and snapped up Instagram for $1 billion. Earlier, Zynga snapped up OMGPop for $200 million (and change). The two deals have been put under the microscope by many (including myself.) However, here are three key lessons (and commonalities) between these two deals.

  1. Panic & Act Fast:  Intel’s legendary CEO Andy Grove once wrote a book called Only The Paranoid Survive. It seems both Mark Zuckerberg and Mark Pincus read that book cover to cover. The speed with which Facebook and Zynga bought these two companies tells me that both Zuckerberg and Pincus are extremely paranoid about letting any competitor get big enough to threaten their business. The $50 million  infusion was all that Instagram needed to hire more people, grow its footprint and gain further momentum, and then Zuckerberg swooped in. The decisions to buy both these companies at such rapid speed tell me one more thing – the two founder/CEOs are firmly in control of their companies, boards and self aware of their weaknesses. And to me that is a good thing.
  2. Engagement matters: Both Marks realize that the future of their business is not just the sheer size of their networks but engagement. The post-social world is an “attention economy.” If you don’t have engagement, you don’t have attention and if you don’t have attention – well you don’t have anything really.
  3. All mobile all the timeIn an interview earlier this year, Mark Pincus was pretty explicit in his desire to conquer the mobile platform. He was also very candid that none of the social web companies have figured out the mobile and this included his company and Facebook. So if they have to buy their way into the market, so be it. Facebook is no different. The company’s mobile efforts are a work in progress. Instagram figured it all out. That said, these two deals are a big indictment of Facebook/Zynga’s mobile teams: it seems the two Marks are also saying, we aren’t really confident about what we have in-house.

On Facebook-Instagram deal, Nabeel Hyatt makes a point that all founders should read.

The best way to think about the value of Instagram is not to think about $1 billion or $30/user, it’s this: 1%. There is no market more strategically valuable to Facebook than mobile, and there is almost no product more valuable than photos for them. It was a very unique situation where a $100b company made a 1% bet.

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  1. Why is Google left out of these deals? If they were willing to spend $6 billion on Groupon why not $1 billion on Instagram? (Too much) confidence in their in-house team and the Motorola acquisition?

    1. I think they were trying just not trying hard enough. I think fundamentally on mobile, Google has to focus on their platform — android.

  2. Yep. Google doesn’t quite get that butt in seats, viewing things through a browser is not where the growth is yet. The Groupon things is about advertizing, Instagram is about mobile users. Seems like Facebook is racing to where the puck is going to be, not where it is.

  3. Absolutely right Om. You summarized the strategic thinking very clearly and succinctly. See the trend (or threat) and act quickly. When you see engagement and growth like that…it will only get bigger and more expensive later. Mobile is growing faster than any other segment. It is different than the web and requires different thinking/skills.

    Money managers should throw away the spreadsheets and think more about strategy.

    Don Dodge

    1. Thanks Don. I appreciate the kind words. You are right, strategy is key.

  4. “Panic and act fast” is pretty much the definition of impulse buying. Not exactly optimal for a considered purchase like a $1 billion acquisition. No matter how much fanboys and media sycophants idealize Zuckerberg, the fact remains that he is a 28-year-old first-time CEO, and acquisitions are one of the most common mistakes that rookie CEOs make. A couple years after its IPO, when Facebook has to take a big goodwill write-down on Instagram, Zuckerberg’s fallibility will begin to dawn on people.

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  6. Douglas Crets Monday, April 16, 2012

    Engagement and mobile, yes. I am not buying the panic.

  7. we can also advertise different products on facebook like iphone 4 and user will easily view the ads and if they like it they can go for it. In this way we can increase the number of customers.

  8. Great post Om. In the midst of all the naysayers it is refreshing to see a well articulated view on why this acquisition makes sense. I fully agree with your POV. Facebook and Zynga are smart to realize their weaknesses and don’t have NIH.

  9. Sofia Fenichell Tuesday, April 17, 2012

    I think the smart one in this deal when the dust settles will be the Instagram CEO! Let’s give credit where credit is due! :-)

  10. Jose Miguel Cansado Wednesday, April 18, 2012

    1% bet makes sense. That explains why Facebook $100Bn valuation is as crazy as Instagram’s $1Bn. Congratulations to all of their shareholders!

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