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Here’s why Facebook’s $1 billion Instagram acquisition was such a great deal

It’s been five years, but some believe more money and more users are just part of the reward.

Instagram CEO Kevin Systrom and Facebook CEO Mark Zuckerberg.
Instagram CEO Kevin Systrom (L) and Facebook CEO Mark Zuckerberg.
Facebook / Mark Zuckerberg

It’s been exactly five years to the day since Facebook announced one of the best business acquisitions in the history of Silicon Valley: The $1 billion purchase of a photo-sharing app called Instagram. At the time of the acquisition, Instagram had just 30 million users and zero revenue.

Now, Instagram has more than 600 million users, and many analysts believe it will soon be a multi-billion dollar ad business — if it’s not already.

The buy today looks genius, even if it wasn’t so obvious back then. In fact, Facebook was about to IPO, and $1 billion was once considered a massive price, especially for a company that didn’t make any money.

But one former Facebook executive, former director of global business marketing Mike Hoefflinger, thinks there’s another reason this acquisition was so valuable: It proved that Facebook could build multiple products at the same time, and also sent a message to other entrepreneurs that Facebook was the best place in Silicon Valley to drive massive growth.

Hoefflinger laid out this theory in his new book, “Becoming Facebook,” which was published last week.

“And therein lies the priceless value of the Instagram story: proof of existence that Zuckerberg can turn visions of growth and impact into reality without undue meddling,” Hoefflinger wrote. “A clear message to the best builders in the world that if you want to play truly big, come work with Facebook.”

Hoefflinger believes the Instagram acquisition is the reason Facebook ultimately landed WhatsApp, although for a much steeper price tag, and was able to acquire Oculus. He also thinks it helped Zuckerberg recruit big-name executives to lead units outside of Facebook’s core business, such as former PayPal president David Marcus, who now runs Messenger, or Yann Lecun, a well-known figure in the world of artificial intelligence who’s helping build out Facebook’s AI research division.

As Hoefflinger wrote: “[The Instagram acquisition] has created an ever-growing gravity for the single most important thing Zuckerberg needs for the success of Facebook in the long term: The desire of the world’s best people and their creations to join with him.”

Not bad for just $1 billion.

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