# Facebook Throws Away A Billion Dollars **URL:** \ **Category:** In My Humble Opinion\ **Created:** [April 10, 2012, 2:56pm UTC](https://boards.straightdope.com/t/facebook-throws-away-a-billion-dollars/618367 "2012-04-10T14:56:18Z")\ **Posts on this page:** 20\ **Page:** 3
**Author:** ![Marley23](https://avatars.discourse-cdn.com/v4/letter/m/45deac/32.png) [@Marley23](https://boards.straightdope.com/u/Marley23)\ **Post date:** [April 10, 2012, 8:27pm UTC](https://boards.straightdope.com/t/facebook-throws-away-a-billion-dollars/618367/41 "2012-04-10T20:27:32Z")
> [@SenorBeef](#): > > I just don’t get it. If facebook just said “we’ll pay each of your employees 3 million fucking dollars for the company”, they wouldn’t have jumped at it? :smack: _They don’t want to hire the Instagram employees. They want to gain the Instagram users._ Hiring the Instagram employees at big salaries doesn’t give you the users. If they did that, they’d have to spend more money as the Instagram employees developed a new app that would have no users and would be competing with Instagram. How does that make sense? ---
**Author:** ![Harmonix](https://avatars.discourse-cdn.com/v4/letter/h/3ec8ea/32.png) [@Harmonix](https://boards.straightdope.com/u/Harmonix)\ **Post date:** [April 10, 2012, 8:38pm UTC](https://boards.straightdope.com/t/facebook-throws-away-a-billion-dollars/618367/42 "2012-04-10T20:38:27Z")
Question: Isn’t facebook actually paying 500 million for instagram? If instagram just raised 500 million, and Facebook paid 1 billion for it. Don’t they get that 500 million in the deal? So really, it’s a 500 million dollar purchase? ---
**Author:** ![Savannah](https://avatars.discourse-cdn.com/v4/letter/s/b3f665/32.png) [@Savannah](https://boards.straightdope.com/u/Savannah)\ **Post date:** [April 10, 2012, 8:40pm UTC](https://boards.straightdope.com/t/facebook-throws-away-a-billion-dollars/618367/43 "2012-04-10T20:40:01Z")
I use Instagram, and really liked it. I have no interest in uploading to Facebook. (I did eventually set up a Tumblr feed as a kind of backup; [http://savannahsghost.tumblr.com/](http://savannahsghost.tumblr.com/)) I just liked seeing what other people did with their pictures, and found it inspiring to use my camera phone in creative ways. However, I probably won’t be using it much in the future–I loathe Facebook. ---
**Author:** ![SenorBeef](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/senorbeef/32/2220_2.png) [@SenorBeef](https://boards.straightdope.com/u/SenorBeef)\ **Post date:** [April 10, 2012, 8:40pm UTC](https://boards.straightdope.com/t/facebook-throws-away-a-billion-dollars/618367/44 "2012-04-10T20:40:48Z")
> [@Marley23](#): > > :smack: > _They don’t want to hire the Instagram employees. They want to gain the Instagram users._ Hiring the Instagram employees at big salaries doesn’t give you the users. If they did that, they’d have to spend more money as the Instagram employees developed a new app that would have no users and would be competing with Instagram. How does that make sense? Fine, but my point stands - could they seriously have offered the company 200m and been turned down? Seems ridiculous to me - who were they bidding against? What’s instagram’s yearly net revenue? ---
**Author:** ![Gangster\_Octopus](https://avatars.discourse-cdn.com/v4/letter/g/a8b319/32.png) [@Gangster\_Octopus](https://boards.straightdope.com/u/Gangster_Octopus)\ **Post date:** [April 10, 2012, 8:41pm UTC](https://boards.straightdope.com/t/facebook-throws-away-a-billion-dollars/618367/45 "2012-04-10T20:41:07Z")
> [@steronz](#): > > I’m as baffled as everyone else. Instagram is installed on a lot of phones, so I can see some small company buying them out as a way to instantly get access to a few hundred million handsets or whatever. > > But you know what’s already installed on several hundred million handsets? Faceboom > k. So why bother? How Instragram users don’t already have Facebook accounts? Six? Yeah, but those six people are Warren Buffet, Carlos Slim, J K Rowling, one of the recent SuperLotto winners, Mark Cuban and some guy in Carson City, NV ---
**Author:** ![yoyodyne](https://avatars.discourse-cdn.com/v4/letter/y/a9a28c/32.png) [@yoyodyne](https://boards.straightdope.com/u/yoyodyne)\ **Post date:** [April 10, 2012, 9:09pm UTC](https://boards.straightdope.com/t/facebook-throws-away-a-billion-dollars/618367/46 "2012-04-10T21:09:59Z")
> [@Harmonix](#): > > Question: > > Isn’t facebook actually paying 500 million for instagram? If instagram just raised 500 million, and Facebook paid 1 billion for it. Don’t they get that 500 million in the deal? So really, it’s a 500 million dollar purchase? The $500M they raised wasn’t free money, it was from investors that expect to be paid back. ---
**Author:** ![Harmonix](https://avatars.discourse-cdn.com/v4/letter/h/3ec8ea/32.png) [@Harmonix](https://boards.straightdope.com/u/Harmonix)\ **Post date:** [April 10, 2012, 9:14pm UTC](https://boards.straightdope.com/t/facebook-throws-away-a-billion-dollars/618367/47 "2012-04-10T21:14:01Z")
> [@yoyodyne](#): > > The $500M they raised wasn’t free money, it was from investors that expect to be paid back. Right. The investors and owners get the 1 Billion. Facebook gets the 500 million in capital + Instagram. ---
**Author:** ![Fuzzy\_Dunlop](https://avatars.discourse-cdn.com/v4/letter/f/848f3c/32.png) [@Fuzzy\_Dunlop](https://boards.straightdope.com/u/Fuzzy_Dunlop)\ **Post date:** [April 10, 2012, 9:24pm UTC](https://boards.straightdope.com/t/facebook-throws-away-a-billion-dollars/618367/48 "2012-04-10T21:24:36Z")
> [@yoyodyne](#): > > The $500M they raised wasn’t free money, it was from investors that expect to be paid back. It was from investors who just jacked the post-money valuation up by $500 million. You can`t say that a company on Tuesday with $500 million cash isn’t worth $500 million more than it was on Monday without the cash. Of course the investors expect to cash out, that’s **Harmonix** ’s point. It inflates the apparent price to Facebook. ---
**Author:** ![msmith537](https://avatars.discourse-cdn.com/v4/letter/m/d9b06d/32.png) [@msmith537](https://boards.straightdope.com/u/msmith537)\ **Post date:** [April 10, 2012, 9:27pm UTC](https://boards.straightdope.com/t/facebook-throws-away-a-billion-dollars/618367/49 "2012-04-10T21:27:22Z")
> [@Harmonix](#): > > Right. The investors and owners get the 1 Billion. > > Facebook gets the 500 million in capital + Instagram. Instagram raised $50 million, not $500 million, in a separate transaction. Sequoa Capital valued them at $500 million meaning that’s what they think the company was worth (typically defined as the present value of all future cash flows). The investors don’t get $1 billion. Instagram gets $1 billion in cash (and stock presumably). Facebook investors now find that their investment has changed from a % ownership of Facebook to a a % ownership of Facebook less $1 billion in assets plus the value of Instagram ( a company valued at $500 million). If the combined merger prooves to be worth it, they get rich. If not, they are slightly less rich. ---
**Author:** ![ftg](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ftg/32/2801_2.png) [@ftg](https://boards.straightdope.com/u/ftg)\ **Post date:** [April 10, 2012, 9:27pm UTC](https://boards.straightdope.com/t/facebook-throws-away-a-billion-dollars/618367/50 "2012-04-10T21:27:36Z")
We are in the midst of another tech bubble. The numbers I see being tossed around for iffy companies being bought/going IPO are ridiculous in most cases. A recent example of this is [Groupon](http://en.wikipedia.org/wiki/Groupon). It’s bleeding money, its 15 minutes of Internet fame are over and there are questions about its accounting practices. It nearly had a blockbuster IPO. It will be in “whatever happened to?” land in a couple years. In 2008 MS offered $33 a share for Yahoo!. Yahoo!'s board of directors turned it down. 10 months later it was under $9. It’s now falling apart. The lessons of 10+ years ago haven’t been learned. I had the same reaction as to OP to the Instagram buy. The only thing to consider about the real value is the “stock and cash” part. If a company has extremely overvalued stock, then can buy companies cheap. But Facebook is one of the few companies that might not be overvalued. Apple today hit $600 billion market value. The current top market value around. This is ridiculous. They are making money, but not that kind of money. ---
**Author:** ![Harmonix](https://avatars.discourse-cdn.com/v4/letter/h/3ec8ea/32.png) [@Harmonix](https://boards.straightdope.com/u/Harmonix)\ **Post date:** [April 10, 2012, 9:35pm UTC](https://boards.straightdope.com/t/facebook-throws-away-a-billion-dollars/618367/51 "2012-04-10T21:35:20Z")
> [@msmith537](#): > > Instagram raised $50 million, not $500 million, in a separate transaction. Sequoa Capital valued them at $500 million meaning that’s what they think the company was worth (typically defined as the present value of all future cash flows). My mistake. ---
**Author:** ![An\_Gadai](https://avatars.discourse-cdn.com/v4/letter/a/d6d6ee/32.png) [@An\_Gadai](https://boards.straightdope.com/u/An_Gadai)\ **Post date:** [April 10, 2012, 10:44pm UTC](https://boards.straightdope.com/t/facebook-throws-away-a-billion-dollars/618367/52 "2012-04-10T22:44:54Z")
A problem for facebook I suspect is that unlike say a consumer electronics brand like Apple, or other long established brands, that users can and will flock to the latest new thing that catches their fancy. I read the other day that pinterest (only a few months old) is now the 3rd most visited social media site in the US. Facebook no doubt rules the roost but the last 10 years is already littered with moribund, once popular social media platforms. $1 billion seems crazy money for Instagram to me, but who am I? I’ve never made a dime from creating an online start up, let alone billions. They might well know what they’re doing. ---
**Author:** ![Evil\_Captor](https://avatars.discourse-cdn.com/v4/letter/e/f17d59/32.png) [@Evil\_Captor](https://boards.straightdope.com/u/Evil_Captor)\ **Post date:** [April 10, 2012, 10:58pm UTC](https://boards.straightdope.com/t/facebook-throws-away-a-billion-dollars/618367/53 "2012-04-10T22:58:33Z")
the problem is, companies have all sorts of cash to spend, over 1.5 trillion IIRC is in corporate coffers waiting to be spent on anything, ANYTHING **ANY FUCKING THING** but more employees, or better wages for existing employees. Because that would be wrong. ---
**Author:** ![Harmonix](https://avatars.discourse-cdn.com/v4/letter/h/3ec8ea/32.png) [@Harmonix](https://boards.straightdope.com/u/Harmonix)\ **Post date:** [April 10, 2012, 11:16pm UTC](https://boards.straightdope.com/t/facebook-throws-away-a-billion-dollars/618367/54 "2012-04-10T23:16:44Z")
> [@An\_Gadai](#): > > A problem for facebook I suspect is that unlike say a consumer electronics brand like Apple, or other long established brands, that users can and will flock to the latest new thing that catches their fancy. I read the other day that pinterest (only a few months old) is now the 3rd most visited social media site in the US. Facebook no doubt rules the roost but the last 10 years is already littered with moribund, once popular social media platforms. $1 billion seems crazy money for Instagram to me, but who am I? I’ve never made a dime from creating an online start up, let alone billions. They might well know what they’re doing. While in principle this is true, so far nothing has ever had the kind of daily, engrained almost Pavlovian customer engagement Facebook has. That kind of momentum is hard to beat. Google put out what is in my opinion a vastly superior product(Google+), and as someone else said, Facebook just shrugged it off. Hell, I think google+ is better, and I still don’t use it cause no one else does. ---
**Author:** ![Shalmanese](https://avatars.discourse-cdn.com/v4/letter/s/45deac/32.png) [@Shalmanese](https://boards.straightdope.com/u/Shalmanese)\ **Post date:** [April 10, 2012, 11:32pm UTC](https://boards.straightdope.com/t/facebook-throws-away-a-billion-dollars/618367/55 "2012-04-10T23:32:35Z")
A couple of points: 1. What you’re seeing publicly is the result of a hidden 18 month bidding war. Instagram has been repeatedly rebuffing acquisition offers from Google and Facebook, forcing them to up the price each time. Them raising $50M on a $500M valuation put an implicit price floor on the purchase and Facebook knew they would have to bid at significantly above that to even be considered. It’s not like someone just woke up yesterday and decided Instagram was worth $1B. 2. Instagram has 30M users, Facebook has close to 900M users which is 30x as much. Facebook is valued at 100x as much as Instagram which means that Facebook thinks each Instagram user is “worth” 1/3rd as much as a Facebook user. 3. Instagram’s user numbers are artificially low since they’ve been iOS only for most of their life. After the Android launch, they saw strong growth numbers and it’s likely they could have doubled their user numbers if they get similar penetration. If you assume an implied 60M users after android growth, then it comes to a valuation of 1/6th the user value of a FB user. 4. It doesn’t matter if a person uses both Facebook and Instagram, what matters is how they split their time & attention between the two. If people are spending a lot of time on Instagram, then that has value. 5. Facebook was incredibly late to the mobile game. For, I think, 2 years, they had a _single_ engineer working on the Facebook iPhone app and their iPad app got snarled in an internal clusterfuck that left them without representation on the iPad for, I think, 18 months after it launched. They’re playing catch up in the mobile space right now which means they’re paying a premium for people who understand mobile development. 6. Facebook’s publicly announced strategy with mobile is to move away from focusing on a single, monolithic app and towards single purpose apps. They acquired Beluga and turned it into the Facebook Messenger app and their acquisition of Instagram is in line with this strategy (although publicly, they claim that Instagram will remain largely independent which is a first for them). Disclaimer: I’m friends with one of the Instagram co-founders & several people in Facebook Mobile but all information contained in this thread has been previously reported in 3rd party sources. ---
**Author:** ![An\_Gadai](https://avatars.discourse-cdn.com/v4/letter/a/d6d6ee/32.png) [@An\_Gadai](https://boards.straightdope.com/u/An_Gadai)\ **Post date:** [April 10, 2012, 11:33pm UTC](https://boards.straightdope.com/t/facebook-throws-away-a-billion-dollars/618367/56 "2012-04-10T23:33:54Z")
> [@Harmonix](#): > > While in principle this is true, so far nothing has ever had the kind of daily, engrained almost Pavlovian customer engagement Facebook has. That kind of momentum is hard to beat. Google put out what is in my opinion a vastly superior product(Google+), and as someone else said, Facebook just shrugged it off. Hell, I think google+ is better, and I still don’t use it cause no one else does. Oh, I wasn’t too clear. I was trying to say that Instagram has the potential to be moribund almost over night like other socia media platforms, not facebook, and hence a $1 billion pricetag seems crazy to me. I think facebook’s already too big to fail, or at the very least, will play an important role for the foreseeable future of the online world. I do think maybe 13-25 year olds will find new online pastures however. Be it twitter or something else in the pipeline. ---
**Author:** ![Larry\_Mudd](https://avatars.discourse-cdn.com/v4/letter/l/f14d63/32.png) [@Larry\_Mudd](https://boards.straightdope.com/u/Larry_Mudd)\ **Post date:** [April 10, 2012, 11:39pm UTC](https://boards.straightdope.com/t/facebook-throws-away-a-billion-dollars/618367/57 "2012-04-10T23:39:46Z")
> [@VinylTurnip](#): > > I’m going to make a mint developing an iPhone app which allows you to place calls by spinning a tiny crank on your screen and then telling an operator to connect you to “EVergreen-seven, fower fiyev three niyun.” You guys better not steal my idea! That is actually an _awesome_ idea. (Of course, the “operator” would be a waveform and a voice recognition API.) (I sometimes mess with sales agents at work by giving out my direct dial number as “Cypress-3 ####.” They get big points if they don’t blink.) ---
**Author:** ![Namkcalb](https://avatars.discourse-cdn.com/v4/letter/n/c89c15/32.png) [@Namkcalb](https://boards.straightdope.com/u/Namkcalb)\ **Post date:** [April 11, 2012, 4:13am UTC](https://boards.straightdope.com/t/facebook-throws-away-a-billion-dollars/618367/58 "2012-04-11T04:13:35Z")
Just how much of the so-called $1 billion payment is facebook stock? If facebook’s IPO doesn’t get as high as predicted, then the Instagram guys will get less than $1billion. ---
**Author:** ![handsomeharry](https://avatars.discourse-cdn.com/v4/letter/h/e9c0ed/32.png) [@handsomeharry](https://boards.straightdope.com/u/handsomeharry)\ **Post date:** [April 11, 2012, 6:29am UTC](https://boards.straightdope.com/t/facebook-throws-away-a-billion-dollars/618367/59 "2012-04-11T06:29:30Z")
> [@yoyodyne](#): > > Instagram has like **20 different shades of brown** you can tint your pictures with! Dang! For 20 different shades of brown, I’m tempted to cut a check for a billion or two myself! ---
**Author:** ![Diceman](https://avatars.discourse-cdn.com/v4/letter/d/22d042/32.png) [@Diceman](https://boards.straightdope.com/u/Diceman)\ **Post date:** [April 11, 2012, 4:39pm UTC](https://boards.straightdope.com/t/facebook-throws-away-a-billion-dollars/618367/60 "2012-04-11T16:39:19Z")
It seems to me that this is the same sort of thinking that causes lottery winners to buy solid gold rims for their car, and dumb crap like that. And that causes sports stars to spend $30,000 at their favorite club in one night. Basically, Facebook has money burning a hole in their pocket, and they’re looking for ostentatious ways to spend it. [Previous page](https://boards.straightdope.com/t/facebook-throws-away-a-billion-dollars/618367.md?page=2) [Next page](https://boards.straightdope.com/t/facebook-throws-away-a-billion-dollars/618367.md?page=4)