Our story starts in October 2010, when a small free photo-sharing program and social network called Instagram was launched. Originally developed by Kevin Systrom and Mike Krieger, the service evolved at a never before seen pace, topping 50 million registered users in just a year and a half.
Naturally, that piqued the interest of several larger companies involved in social networking, including Facebook, which, in a rather surprising move, acquired Instagram in April 2012 for a whopping $1 billion. The deal was approved in August this year after passing the usual regulatory hoops. In the meantime, Instagram leaped to 100 million users, being now in a gradual integration process with FB.
You probably knew all that already, but our story takes an unexpected turn of events today, after it's been revealed that it was actually Twitter that was very close to buy Instagram before Facebook. The second largest social network in the world offered $525 million in cash and stock for the acquisition back in March, according to Nick Bilton with NY Times.
What’s more interesting is that, according to Bilton’s sources, Kevin Systrom, Instagram’s CEO, verbally agreed to the Twitter deal at first, but quickly backed out saying he wanted his company to remain “independent”. But the independence got shattered less than three weeks later, when Facebook’s $1 billion offer broken down in $300 million in cash and the rest in stock got the thumbs up.
Big deal, you might say. So Systrom lied to Twitter officials to not hurt their feelings and then cashed out on the more lucrative Facebook offer. Kudos to him! Well, not so fast, because things are not that simple.
First off because Systrom testified in court that he didn’t receive any formal offers before discussing with Facebook. That was at a hearing of the California Corporations Department during the process of determining if the acquisition was in the best interest of Instagram investors and under oath.
Systrom said “We never received any formal offers or term sheets”, which seems to not exactly be the truth, the whole truth and nothing but the truth. As a matter of fact, a Twitter employee even gave Systrom a term sheet, which is a nonbinding document outlining the terms of a proposed acquisition.
Then again, Instagram’s CEO only read the sheet and then returned it, so he might have an excuse there. Also, none of the meetings with Twitter officials took place at any of the two companies’ offices, but in restaurants and other informal locations, so that’s another defense against possible accusations of perjury.
Another thing that complicates this entire shenanigan is the question about Systrom’s reasons to reject Twitter’s bid and then immediately accept FB’s offer. Of course, $525 million is a lot less than $1 billion, but why didn’t Instagram’s CEO try to negotiate with Twitter or hold a public auction?
It’s also worth noting that Instagram didn’t get $1 billion from FB after all, but only $735 million after Zuckerberg’s stock plummeted. So, the gap between the two offers closes while suspicions about certain “deal sweeteners” or incentives being offered by Facebook to Systrom rise and shine.
For now, none of the three parties involved have come out with official statements on the matter, but we'll definitely keep you posted if we hear something. In the meantime, we'd love to hear your thoughts. Is Instagram better off under Zuckerberg's leadership or would a deal with Twitter have been more beneficial? Was Systrom “bribed” to accept the FB deal? Could Instagram have been sold for more than $1 billion if it would have gone through an open auction?