Facebook bought Instagram for $1 billion in April 2012. For a company with just 13 employees, it was a very huge amount. Now, the leaked emails between CEO Mark Zuckerberg and CFO David Ebersman gives us an actual story behind the deal.
The emails were revealed during the House antitrust subcommittee hearing on Wednesday. In early 2012, Zuckerberg started the discussion of buying smaller competitors like Instagram and Path.
Zuckerberg admitted that he considered Instagram as a competitor
"These businesses are nascent but the networks established, the brands are already meaningful, and if they grow to a large scale the could be very disruptive to us," Zuckerberg wrote in his first email. This conversation happened just two months before Instagram's acquisition.
The antitrust laws exist to prevent buying out the competition in the first place. Zuckerberg admitted that he considered Instagram as a competitor in the mobile photo sharing platform and a complimentary service.
Somehow, the deal successfully cleared the Federal Trade Commission, and Instagram has grown immensely over the years. In 2019, Instagram accounted for 31.8 percent of Facebook's overall advertising revenue.
After a few back and forth email conversations, Ebersman replied with the four potential reasons to buy companies: neutralizing a competitor, acquiring talent, integrating products to improve the Facebook service, and other.
Instagram co-founder worried about Zuckerberg's destroy mode
In his reply, Zuckerberg said, "it's a combination of neutralizing a competitor and improving Facebook." According to him, this deal will give Facebook enough time to integrate its dynamics before other companies can get anywhere near them.
After 45 minutes, Zuckerberg sent another email, this time with more carefully worded clarification. "I didn't mean to imply that we'd be buying them to prevent them from competing with us in any way," he said in his follow-up email.
Interestingly, Facebook also said to have threatened to use its own "Facebook Camera" app against Instagram before the acquisition happened. In his conversation with Instagram co-founder Kevin Systrom, Zuckerberg said, "how we engage now will also determine how much we're partners versus competitors down the line.
Systrom also worried about Zuckerberg's "destroy mode" if the deal didn't take place. In another email, he also said that the good thing about startups is that you can often acquire them. Apart from Instagram, other Facebook acquisitions include WhatsApp, Path, and Foursquare.
Moreover, Zuckerberg also grilled with questions over copying features from competitors like Snapchat. When asked how many competitors did Facebook end up copying, he said, "I don't know."