Facebook Inc.

is a worldwide application-based company founded in 2004 by Mark

Zuckerberg and headquartered in California, United States. Facebook allows its users to
create profiles that are accessible through internet-connected electronic devices such as
smartphones, tablets, and desktop computers.
In the United States, Kevin Systrom and Mike Krieger founded the picture and video sharing
social networking site Instagram. Users may use this software to upload and share media and
posts with the general public or their followers.
Facebook spent $1 billion in cash and shares to acquire Instagram in 2012. Because the
business only had thirteen employees at the time, this figure was unexpected. This transaction
was dubbed a "killer acquisition" because it would harm consumers by eliminating
competition and giving a monopoly in the social-media industry. It is frequently said that
Facebook regarded Instagram as a threat in the social-networking space and bought it to
reduce potential market rivalry. This acquisition was notable since it was the outcome of an
investigative debate between Facebook and Instagram, during which both sides negotiated
over various issues and simultaneously provided multiple offers in terms of client base and
financial value development. It was regarded a success since both businesses met their mutual
goals and generated a profit.

1. BATNA stands for "Best Alternative To a Negotiating Agreement."

 Instagram’s BATNA- The following was Instagram's best alternative to Facebook's

acquisition offer (BATNA). In return for funding, a venture capital firm valued
Instagram's worth at $500 million US dollars and offered to sell a 10% interest in the
business. Instagram was finalising this $50 million transaction as a back-up plan in
case Facebook's bid was turned down.
 Facebook’s BATNA – Facebook's best alternative to the present bargaining
agreement was as follows. To preserve its dominance in the social media business,
Facebook may commission its developers to create new features and additions for the
app that would engage more users and draw the attention of prospective users.
2. Facebook ran across a number of roadblocks in the early stages of purchasing
Instagram. Systrom turned down an acquisition offer from Facebook's Mark
Zuckerberg in 2011 because he wanted to focus on the company's independent
development. Twitter was reported to have pushed a merger with Instagram
actively in 2012. According to their cost analysis, they could buy them for
between $500 million and $700 million, or 7% to 10% of their equity.
Instagram was reportedly contemplating selling a 10% part in its worth in
order to obtain $50 million in venture capital investment, which alarmed
Facebook. As a consequence of Facebook's user privacy regulations,
Instagram faced difficulties. When Facebook's privacy-invading practises
threatened to eject all of its users' personal data and information, Instagram
feared that it would lose subscribers and customers.

Instagram, a relatively newcomer to the social media scene, quickly overtook

Facebook as the market leader. In light of their common goals, the two firms
consolidated their operations. Since Facebook's inception, the company has
been working hard to turn itself into a popular mobile application, but it was
having a difficult time doing so. For this reason, Instagram is able to offer
Facebook with such access since it was created to enable users to publish and
share mobile photographs, videos, and other material. At the time, Facebook
had tens of millions of users, but Instagram had just 30 million and wanted to
grow its user base, which may have been made simpler by Facebook's success.
They had always planned to operate Instagram independently, but they
required Facebook's extensive infrastructure and production crew to help them
grow. Though each company believed they could simply complement one
another and meet the other's demands, this was a mistaken assumption. The
ZOPA was reached, indicating that these discussions had been successful.
3. To make their operations compatible, the two companies utilised a number of
tactics. In recent years, Facebook has worked hard to give users with the best
possible experience when sharing images, videos, and other information with
friends and family. Integrating Instagram's mobile sharing capability would
make it easier to post content on Facebook as well. Instagram users who have
access to their Facebook connections may connect with their Facebook friends
as well. Users will be able to share their Instagram posts on Facebook and vice
versa.

Prior to the purchase, Facebook CEO Mark Zuckerberg had shown interest in
owning Instagram for over a year. Because both sides addressed different
themes and presented several offers, it was difficult to achieve a decision and
complete the deal in this negotiating scenario. When Zuckerberg first
approached Systrom about purchasing Instagram in 2011, Systrom rejected
because he wanted to run the company independently. Later that year,
Zuckerberg discovered that Twitter had made an offer to buy Instagram and
was looking for venture capital funding. Despite the fact that Instagram was
only worth $500 million, Facebook made a $1 billion deal to purchase it. This
meant that Facebook compensated Instagram for the value of its goodwill.
During the talks between the two companies, Facebook opted to let Instagram
function freely. This raised the chances of Instagram consenting to the
transaction.
4. Negotiation Powers –
 A powerful BATNA: Instagram had extraordinarily potent BATNAs
in two forms: venture capital investment in the amount of $50 million
US dollars, representing 10% of the firm's $500 million market value.
Second, Twitter made an acquisition bid between $500 million and
$700 million for Instagram. As a BATNA, Facebook was able to
redesign its application and make it more engaging and enjoyable for
users. As a consequence, Instagram had the upper hand since they had
stronger BATNAs, enabling them to negotiate a better deal.
 Informational Advantage: After doing comprehensive research on
Instagram, Facebook realised they needed immediate funding. They
also recognised Systrom's (CEO of Instagram) demand for autonomy
in decision-making authority and Instagram operations. This enabled
Facebook in swiftly negotiating a deal that satisfied their mutual
interests.
 The Power of Commitment: To convince Instagram of the acquisition
and secure their trust, Facebook said that Instagram would be allowed
to operate freely under its original name and that Facebook would
never influence Instagram's decision-making.
5. I think Facebook's purchase of Instagram was a good idea because both
companies' profits and customer bases grew a lot after the merger. When
Facebook bought Instagram, it only had 30 million active users and no
revenue, while Facebook had hundreds of millions of users and its IPO was
expected to be worth $100 billion at the time. By 2017, Instagram will have
more than 600 million users and will be worth a lot of money. Today, almost
one out of every four dollars that Facebook makes from ads each year, which
is over $20 billion, comes from Instagram. Even though Instagram was new to
the social networking business and had only 13 employees, Facebook bought
it for $1 billion USD. This was despite the fact that Facebook was one of
Instagram's biggest competitors in the field. Facebook didn't waste much time
getting a deal done and buying a company it saw as a possible threat. Before
they officially joined forces, Facebook watched Instagram for a year and
found out that other companies were also interested in buying the platform. As
a result, Systrom, the owner and CEO of Instagram, got an attractive offer: he
could run Instagram on his own, but he could use Facebook's technical team
and infrastructure to fix and improve the service.
6. Takeaways from this case study:
 Have a strong BATNA: Instagram had two strong BATNAs in the
form of Twitter and venture capital investment, which affected
Facebook's choice to make an enticing offer for negotiation. Facebook
knew Instagram had backup plans and could easily reject their offer, so
they made a substantial offer to Instagram.
 Thorough examination of the opposing party: Facebook had
thoroughly examined and grasped Instagram's needs and desires,
acquiring the latter's trust by offering Instagram autonomy over its
decision-making and operations.
 Trust your instincts: When Facebook paid $1 billion USD for
Instagram, experts and critics thought he overvalued the business and
paid too much for a company that was not even profitable at the time.
Instagram, on the other hand, is today a multibillion-dollar business.
 Examining future competitors and markets: Facebook anticipated
that Instagram will dominate the social-media markets in the next
years, and it sought to retain its position as the industry leader. As a
result, he bought his competitor and turned it into an expansion
opportunity.