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Summary:

Facebook’s $1 billion blockbuster deal for Instagram may have been motivated by a desire to keep Instagram out of Twitter’s hands. Twitter reportedly offered hundreds of million dollars for Instagram, which prompted Facebook’s CEO Mark Zuckerberg to offer a better deal.

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Facebook’s $1 billion blockbuster deal for Instagram may not just have been about shoring up its mobile weaknesses or helping people share beautiful photos. VentureBeat is reporting that a secret bid by Twitter for hundreds of million dollars helped prompt Facebook’s CEO Mark Zuckerberg to move quickly in order to keep Instagram out of Twitter’s hands.

VentureBeat’s Jennifer Van Grove said that right around the time Instagram was raising $50 million from Sequoia and Greylock, Twitter’s founder and CEO Jack Dorsey swooped in with a bid. Instragram’s CEO Kevin Systrom closed its financing and then reportedly took the Twitter bid to Zuckerberg, who wasted no time in denying Twitter a chance at Instagram.

Van Grove said that Zuckerberg was motivated by paranoia, fearful that Facebook could get displaced by a Twitter-Instagram combo. That led to a speed round of negotiating that took just three days and led to what may be the biggest pay day for a mobile app.

It’s hard to say how much paranoia of Twitter ultimately ruled the day in the Instagram deal. As we’ve pointed out, there are plenty of reasons why Facebook wanted Instagram: it was built from the ground up as a mobile app and it has a passionate following that has grown at an incredible clip. That alone made it a real threat by itself to Facebook. But, if this account is true, it makes more sense why Zuckerberg acted so quickly. Instagram by itself might not have mounted that much of an immediate challenge but combined with Twitter, it could have led to a scenario that would be considerably more unsettling for Zuckerberg.

The swift move to buy Instagram also shows that Zuckerberg is not playing around and is ready to wield his authority when he senses a real threat. And he is especially ready to play keep-away when it comes to Twitter. Yet it’s worth noting that Twitter was likely not surprised by the Facebook purchase. It’s hard to compete with a company that may soon be valued at $100 billion but Dorsey may take comfort in knowing he can keep Zuckerberg up at night.

  1. Shankar Saikia Thursday, April 26, 2012

    GAME THEORY AT WORK

    If the rumor of Facebook reacting to a Twitter acquisition bid on Instagram is true, then this is a good example of game theory at work. While the best outcome for either party (i.e., Twitter and Facebook) may have been to leave Instagram alone, the most likely outcome was going to be the next best one (a suboptimal one) .. i.e., for one of them to acquire the company to keep it away from the other one.

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    1. Petter Martin Friday, April 27, 2012

      Nice observation Shankar
      But the question is, would leaving instagram alone actually be the best option for them?

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