Buying Instagram for $1 billion today, Mark Zuckerberg showed that he learned an important lesson from Terry Semel.
For companies in the technology industry, it can be far more expensive later to not pay few billion dollars now for a disruptive startup.
In the summer of 2002, Yahoo could have merged with Google at a cost of $5 billion. Yahoo should have done the deal because Google search was disrupting Yahoo’s man-made listings. Today Google is worth $200 billion.
Four years later, Yahoo had a deal done with Facebook to buy it for just a little more than $1 billion. At the last moment, Yahoo CEO Terry Semel chickened out. Yahoo needed to do the deal because Facebook was dragging users away from Web 1.0 portals, and threatening to take brand advertising dollars with it. Today Facebook is worth $100 billion.
Today, Yahoo’s market cap is $18 billion, profits haven’t grown in years, and thousands of people are going to be laid off in the next few months.
Yesterday, Zuckerberg was sitting right where Semel was in 2002 and 2006. Facebook has a strong product (photo-sharing on the Web), but a gaping weakness (photo-sharing on mobile), that a startup, Instagram, was exploiting.
Unlike Semel, Zuckerberg pulled the trigger. Smart.
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