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Facebook’s recent ‘bear hug’ of Instagram frustrated its independent founders, leading to their exit

The popular photo and video app and its social network parent have become more intertwined. Kevin Systrom and Mike Krieger were not into it.

Instagram co-founder Kevin Systrom
Instagram co-founder Kevin Systrom
Dimitrios Kambouris / Getty

Of all the CEOs to join Facebook via an acquisition — and there have been many — Instagram’s Kevin Systrom has always been considered the best fit with Facebook’s Mark Zuckerberg.

Not only were they both great at building products, but they had developed a mutually beneficial relationship.

It has gone smoothly for six years, as Systrom and his partner Mike Krieger kept building Instagram — both the company and the product — without much interference from the corporate overlords at Facebook. Operating with this critical wide autonomy, which was promised when the photo app was acquired in 2012 for $1 billion, Instagram was much cleaner and simpler and definitely more hip than Facebook’s bloated “blue app.” It even opened its own office down the road from Facebook’s Menlo Park headquarters, complete with its own library and coffee shop from Blue Bottle, where Systrom is an investor.

And, of course, the quid pro quo: Facebook helped Instagram’s user base take off dramatically, in large part due to the social networking giant’s extensive graph of user connections. It also ported its advertising business model onto the platform with great success. Research firm eMarketer estimated that Instagram will generate roughly $8 billion in ad revenue this year.

This was no easy accomplishment. In many tech deals, there is more often a harder road that ends in tears with a parting of ways between the acquirer and the acquired.

There was no visible weeping yesterday when Systrom and Krieger announced they were leaving the company they had founded, which came as a surprise to both their bosses and employees.

Well, maybe not so surprising. Over the past year, both Systrom and Krieger have grown increasingly frustrated and agitated with Zuckerberg and Facebook’s increased influence over the app, according to multiple sources. One characterized it as “bizarre meddling” that hurt morale within the unit.

Specifically, there were worries that Facebook’s moves were hurting the app’s growth — perhaps even intentionally — through some of the company’s product updates and marketing changes, these sources said.

That included a throttling back of Instagram’s promotion inside the Facebook app, apparently ordered by Zuckerberg, that dropped weekly referrals significantly by hundreds of thousands of users.

Systrom was also frustrated with a recent Facebook change to how posts are shared between the two apps. Previously, photos shared to Facebook via Instagram included a label identifying the photo as an Instagram photo, presumably to encourage people to visit or download Instagram. That label was recently removed, which made it appear as though people were posting those photos directly to Facebook and not to Facebook via Instagram.

It was a small tweak, but it was a big deal inside of Instagram, according to multiple sources. Systrom — who has historically been hands-on with all the aspects of the app — disagreed with the decision, and even posted as much on the internal company Facebook page. The feeling of some was that Facebook wasn’t promoting Instagram, and even taking credit for engagement that Instagram was driving.

Around the same time, Facebook started leveraging Instagram for its own growth and engagement. It started testing push notifications inside of Instagram this summer to drive people back to the Facebook app.

There were other disagreements. When Instagram launched IGTV, its new video section for creators, there was pushback from Facebook execs internally who feared the new video section would cannibalize Facebook’s own video section, Watch, according to multiple sources. Systrom and Instagram ultimately won that argument with Zuckerberg’s support, but it was clear the two sides weren’t fully aligned.

On the Facebook side, Instagram was seen less and less as an independent company and more as a division within the broader organization. Facebook wasn’t actively hurting Instagram’s growth, sources say, but with one billion users, the thinking was that Instagram needed less help from its parent company.

Some inside Facebook believed that Instagram’s co-founders, who valued their independence, weren’t always team players. Many close to Zuckerberg often noted that Instagram would not be the jewel it had become without Facebook and its massive social graph or its ad infrastructure shining it up.

A Facebook spokesperson declined to comment.

It’s unclear if there was one final straw that pushed Systrom and Krieger to actually leave, although several sources note that the marketing throttling and also issues around slower headcount growth at Instagram compared with other divisions was problematic.

In addition, some inside Facebook posit that Systrom just got back from paternity leave, and it’s possible he simply reevaluated things while he was gone. It’s uncommon for founders who sell their company to stick around for a long time, with many staying just long enough to vest, usually four years, then depart. Systrom and Krieger’s six years is long by comparison. Some don’t even last a year.

That’s why many people familiar with the situation said the pair were very engaged in Instagram’s future and did not seem inclined to leave. But as Facebook’s “bear hug” — as some have characterized it — has been tightening, Systrom and Krieger were tired of fighting it.

The big question now is what happens next. Facebook is still the most dominant social app in the world, but has taken a public beating from politicians, journalists and users over the past two years for a myriad of issues, including how it handles user privacy.

Instagram, on the other hand, is seen by many as Facebook’s most valuable asset given its popularity with young people and its growth potential. Bloomberg estimated this summer that Instagram is worth more than $100 billion, more than half of Facebook’s market cap when it bought Instagram. And now, Facebook isn’t just lucky to have Instagram — it needs Instagram.

The obvious concern if you’re a Facebook investor is that, without the two co-founders at the helm, the company could screw up Instagram.

Still, at this point, Instagram is a big platform with a lot of momentum; it’s hard to imagine a change in leadership would have any immediate impact. It’s unclear who will run Instagram moving forward, although most expect it will be an existing Facebook executive. Instagram COO Marne Levine just took a new job running all partnerships at Facebook. The most likely candidate is Instagram’s VP of Product Adam Mosseri, a longtime Facebook product executive who’s close with Facebook’s two product czars: Zuckerberg and Chris Cox, who took over all of Facebook’s apps in a big company restructuring this summer. He replaced Kevin Weil, who went over to the company’s blockchain effort, in May.

As for Systrom and Krieger?

“We’re planning on taking some time off to explore our curiosity and creativity again,” Systrom wrote on Instagram’s blog late Monday, which some felt was a bit of shade aimed at Zuckerberg and Facebook. “Building new things requires that we step back, understand what inspires us and match that with what the world needs; that’s what we plan to do.”

Additional reporting by Kara Swisher.

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