A Billion Dollars For Instagram Kinda Crazy, Facebook

If you ask us, Facebook shows how little they get it. Sure they want and need to be in ‘mobile’ in a way that sends big waves before the IPO roadshow, but why spend this kind of money – and give away stock — for photo sharing. We get it – Justin Bieber sent a highway photo and they got lots of new ‘peeps’, and ‘peeps’ means money — but seriously they should have done the Microsoft maneuver and just spent some money on patents. (If you missed the news, AOL sold Microsoft some 800 patents — in a non-exclusive license — that drove their stock price up 43%. If FB bought a few hundred patents, maybe they could keep the Yahoo lawsuit at bay…)

Who won the California Lottery?
Sure thirty-one million mobile iOS and Android users on Instagram makes sense for Facebook. Plus they probably see sheer numbers and volume as a way of offsetting their low advertising CTR (click through rate). But considering that Wired magazine is reporting that the Instagram co-founders CEO Kevin Systrom and co-founder Mike Krieger will pocket $400 miliion and $100 million respectively from the deal, is pretty ridiculous. After investors and venture capital payouts, the company’s 13 full-time employees will split another $100M depending on how long they’ve been with the TWO YEAR OLD COMPANY! (that’s $7.69M on average!)

Was this really the best mobile photo sharing deal for Facebook? Couldn’t they develop something like this functionality or better, and if not, what does that say about their talent pool? And why not buy smaller “open mobile social photo” companies and integrate them into Facebook’s platform? With such a large user base, FB users would be quick to adopt a cool new tool, gadget, device, or feature. And seriously, if you wanted some smart people to come work for you, do you really have to give them hundreds of millions of dollars? Won’t these wealthy Instagram employees eventually wander off now too because they hit the FB lottery? Oh yeah, and Instagram hasn’t made any money in their two years…

Zuckerberg really should have paid for this deal out of his own pocket
I agree with the comment that floor trader Steve Grasso made on CNBC’s Fast Money cable program (watch the 4/9/12 on iTunes podcasts) about how this Instagram acquisition might raise issues about their “decision making process”, and about how they will use their money. Closing this deal — handled personally by Facebook CEO Mark Zuckerberg — represents apparently the third time Mark tried to get Instagram CEO Systrom to come to FB. Is this stubborn or desperate? The LA Times reported that based on Sequoia Capital funding, Instagram was valued at $500 million. Way to overpay guys… especially when the Facebook IPO valuation hangs in the process.

A Blair

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