Romil Patel's opinions on the tech industry.


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Apr 9, 2012
@ 3:00 pm
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Twitter Upset about Facebook-Instagram Acquisition

So Facebook just announced they acquired Instagram for $1 billion…who knew? Well, Twitter knew - and they are pretty upset about it. I’ll get to that in a minute. But first let me congratulate the Instagram team on creating a product everyone loves and much success. Also, to be honest, the majority of Instagrams popularity and success should be credited to Twitter. Sure there was Facebook where people sometimes shared filtered photos, but Twitter was where people constantly shared Instagram photos- versus say um…Twitpic?

According to someone close to Twitter, Twitter was interested in acquiring Instagram. But why did it not happen? Here’s why: Twitter didn’t have the means. And now they are highly upset about the whole situation.

Obviously they wanted to get their hands on the Instagram property because of the strong user engagement that Instagram users have, in essence creating more value for Twitter shareholders.

The main difference between Facebook and Twitter is that Facebook is going to have an IPO very shortly. This means that their stock is very attractive (and straightforward), Unlike Twitter who’s stock is harder to figure out the real value on. Also the cash reserves for Twitter are nowhere near the reserves of Facebook. Twitter doesn’t really have a healthy stream of revenue like Facebook so the billion they raised in total is about what they are running on.

But lets get to the Instagram acquisition. It all comes down to money (and with money- CASH is king). I’m sure if AOL decided to write a check for $1.1 billion or more in cash (digging in to the proceeds of their patent sale to Microsoft today), Instagram might have exercised that opportunity. Twitter just didn’t have the money it needed to persuade the Instagram team to sell to them. Nobody wants Twitter stock when they can get Facebook stock which perhaps will pop on IPO day and is super hot. Obviously Twitter couldn’t write a $1 billion check and call it a day. It’s well understood that the majority of this Instagram acquisition was Facebook stock and not cold hard cash (although some), because Facebook stock is almost as worthy as cash (if not more because of the perceived notion of a IPO pop).

But what’s more interesting out of all this, is that this will force Twitter to ramp up revenue so they don’t let opportunities like this slip away in the future to a cut throat competitor like Facebook.

Oh and you can bet Twitter is going to start aggressive in-house filtering of photos.

I should also note, Jack Dorsey (the creator of Twitter) was an investor in Instagram. Clearly, that had no outcome on the acquirer though.