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As more details of the Instagram deal come out, it has become clear that Mark Zuckerberg pulled off a big billion dollar app deal while he still could, before the Facebook founder has to answer to the shareholders and board members of a public company. Because of the financial responsibilities that come with going public, the social network's CEO was always reluctant to file for an IPO, fearing his company would lose the "hacker" spirit he worked so hard to preserve in order to please shareholders. Even when forced to take his company public, Zuckerberg structured the company so that he would maintain as much power as possible, giving himself 57 percent control of the company's voting rights. Yet even with all that power, doing the kind of three-day covert dealings that went down between Zuckerberg and Instagram honcho Kevin Systrom, which we learn about in detail from The Wall Street Journal's Shayndi Raice, Spencer E. Ante and Emily Glazer today, isn't the type of thing a CEO of a big public company can do without consulting the board or lawyers or anyone. But, Facebook hasn't quite gone public yet and it looks like Zuckerberg took this limbo time, before hitting the stock market as a publicly traded company, for a last hurrah, full of hacker spirit.
Even before Facebook announced its IPO, the company had two divergent cultures: the hacker way and the Sheryl Sandberg-led corporate minded side, which we learned about via an inside look at the social network from Fortune. "This is a company that operates as two symbiotic halves," wrote the magazine's Miguel Miguel Helft and Jessi Hempel. "One, Zuckerberg’s world, is a meritocratic, coder-led organization that develops the Facebook site; the other, which is charged with making money out of it, is subordinate," they continue. As Facebook moves from small start-up, to giant public company, the Zuckerberg ethos, which he calls the "hacker way," has to answer to the Sandberg-led side. Or it at least has to consult with the money-making schemers when buying up the competition. "These sorts of fast decisions, commonplace among scrappy, private start-ups, get trickier in the more structured world of multibillion-dollar public corporations where Facebook will soon operate," write Raice, Ante and Glazer.
But Facebook isn't yet operating in that more structured world and Zuckerberg took advantage with this Instagram deal, leaving the financially driven side out of it. Sandberg knew about the deal, a source told Raice, Ante and Glazer, but she wasn't involved. This one Zuck did alone, taking just three days for solo negotiations with Systrom. "Companies generally prefer to bring in ranks of lawyers and bankers to scrutinize a deal before proceeding, a process that can eat up days or weeks," explain Raice, Ante and Glazer. This was a three day process, with Zuckerberg "negotiating mostly on his own," bringing Systrom down from $2 billion to the final $1 billion price tag. The board, including Marc Andreessen, the second to invest in Facebook ever, didn't know about any of it until after the two had already struck the deal. "Facebook's board did vote on the deal, according to people familiar with the matter, though it was largely symbolic," write Raice, Ante and Glazer. Zuckerberg went rogue, something he won't have as much freedom to do come IPO day.
In a way, the way the deal went down and its motivations is very "hacker way" of Zuck.This hacker way means keeping Facebook a place where product innovation, not profit margins, rules. "A place where engineers stay up all night to mock up new features ... a place where managers will scrap the site’s most sacred elements, like the traditional profile page, if there’s a potential for something better," write Helft and Hempel. Not a place that answers to shareholder whims. Buying Instagram in three days without talking to anyone falls under the hacker way, rather than the Sandberg way. Fear of falling behind on innovation, not money (exactly), drove the sale, we learn from The Journal. "Mr. Zuckerberg was particularly concerned when he saw millions of people signing up for the Android app, people familiar with the matter said," they write. "One concern: Facebook was falling behind in mobile as younger start-ups were innovating more quickly." We know photo sharing is one of the most popular aspects of Facebook and we also know that Facebook is weak in the mobile space -- two things Instagram rules at, concerns only vaguely mentioned in the S1 filing. "Growth in use of Facebook through our mobile products, where we do not currently display ads, as a substitute for use on personal computers may negatively affect our revenue and financial results;" reads the "risk factor" section followed by: "Facebook user growth and engagement on mobile devices depend upon effective operation with mobile operating systems, networks, and standards that we do not control." It didn't mention buying up the competition. No, this acquisition was driven by that hacker hunger for constant innovation.
In about two months, Zuckerberg will leave start-up land, completing the transition to big-boy tech company, as it goes public. Then, Zuckerberg won't have the freedom to pull clandestine billion dollar deals like this, losing at least one aspect of his company's hacker spirit. "Ever since he hatched the social network in his Harvard dorm room in 2004, Zuckerberg has fought to preserve the so-called hacker ethos that is at the root of how Facebook really operates," write Helft and Hempel. Can he keep fighting? Or will he end up like the Yahoos and Googles of the tech world
, compromising founding beliefs to make money?
This article is from the archive of our partner The Wire.