Bài tập nhóm môn Giao dịch và đàm phán trong kinh doanh đề tài: The negotiation of Facebook purchasing Instagram

lOMoARcPSD| 38777299
NATIONAL ECONOMICS UNIVERSITY BUSINESS SCHOOL TEAM PAPER
TOPIC: THE NEGOTIATION OF FACEBOOK PURCHASING INSTAGRAM Table of contents
I. INTRODUCTION II. NEGOTIATION ANALYSIS 1. Negotiation issues 1.1. Parties’s views a. Facebook b. Instagram
1.2. Reasons for negotiation: a. Opposing interests: b. Negotiation points
1.3. Changing settlement range in a positive direction 1.3.1 Lessons learned
2. Commonalities and differences
2.1. Key commonalities and differences of two parties
2.2. Pros and cons of companies
2.3. Maximizing commonalities and minimizing differences
2.3.1. Proposing a suitable negotiation approach 3. Powers and risks
3.1. Key sources of power of each side
a. Facebook's key sources of power lOMoARcPSD| 38777299
b. Instagram's key sources of power
3.1.1 How to increase their power in the negotiation 3.2. Negotiation Risks 3.2.1. Possible risks
3.2.2. Our bringing out solutions vs the negotiation is in reality
III. CONCLUSION IV. REFERENCES I. INTRODUCTION
In April 2012, Facebook - an internet platform for people to stay connected and to express themselves
to their family and friends announced its plan to acquire Instagram, a popular photosharing app, for $1
billion in a combination of cash and stock. The negotiations between the two companies lasted for
several months, and included discussions around the value of Instagram, its potential for growth, and
the terms of the acquisition agreement. The acquisition was ultimately approved by regulators and
finalized in September 2012, making Instagram a wholly-owned subsidiary of Facebook. The purchase
has since been recognized as one of the most successful tech acquisitions in history, helping to solidify
Facebook's dominance in the social media landscape. This report will give specific analysis of the
negotiation. These analyzes may still have many limitations in terms of professional knowledge, we
really hope you will accept and give suggestions to improve the report.
II. NEGOTIATION ANALYSIS 1. Negotiation issues 1.1. Parties’s views
Before, we will Review the context when negotiations took place in 2012, Instagram thrived when
released on Android. The number of users of instagram is growing at a dizzying rate and has reached
50 million users in just a few weeks. and facebook rushed to negotiate to buy instagram right after that. a. Facebook
Firstly, from the perspective of facebook, image sharing is one of Facebook's strengths. But Instagram
attacked their weakness through the development of photo sharing app via mobile devices. Instagram
was growing at breakneck speed on mobile while Facebook's mobile platform was not appealing to
users. Realizing this weakness, Mark Zuckerberg decided to buy Instagram immediately. Steven Levy
wrote in the book "FaceBook - The Inside Story": "Instagram's growth comes at a "sensitive" time for
Facebook, when it is struggling to change in the face of the smartphone wave.". The author mentioned
the phrase "buy to kill" to describe how this giant deals with the potential competitor.
Moreover, Instagram's co-founders, Kevin Systrom and Mike Krieger, were both highly talented and
innovative developers who had built an incredibly successful platform in a short amount of time. By
bringing them on board, Facebook was able to tap into their expertise and bring fresh talent and ideas to the company.
Finally, Mark Zuckerberg was worried that Twitter would buy Instagram. In March, Twitter offered to
buy Instagram for $525 million in cash and stock. According to VentureBeat, Mark Zuckerberg jumped lOMoARcPSD| 38777299
right into the negotiation process to buy Instagram so that the app wouldn't fall into the hands of rival
Twitter. Facebook quickly interrupted this deal with a much more attractive offer for up to $1 billion. b. Instagram
On the other hand for Instagram, one factor that likely played a role in Instagram's decision was the
price that Twitter was willing to pay. According to reports at the time, Instagram may have felt that
the higher price offered by Facebook was more in line with their valuation and reflected the potential
value that they could bring to the social media giant.
Besides, Instagram and Facebook shared a similar vision for the future of social media, with both
companies focused on mobile-first experiences and building engaging, visually-driven platforms. By
joining forces, Instagram was able to align themselves more closely with Facebook's strategic
priorities, which helped to position the company for long-term growth and success.
Finally, being a part of Facebook gave Instagram greater visibility in the tech industry and the wider
public consciousness. This helped to further cement Instagram's position as one of the most popular
and influential social media platforms, which in turn helped to attract more users and advertisers to the
platform. In addition, facebook gave instagram opportunity to access to a much larger pool of resources
and cross-promote their platform with Facebook and other apps owned by the company, such as WhatsApp and Messenger
1.2. Reasons for negotiation: a. Opposing interests:
For Facebook, Because realizing the potential of Instagram in the future will be a worry, Mark
Zuckerberg buys it for 10 times the true value of the current Instagram to buy outright and prevent
competitors from further development.
Moreover, at that time, Facebook was facing the risk of losing market share to typical emerging
platforms like Twitter. So Facebook needs something new to grow, and Instagram has great potential
For Instagram, it’s all about risk mitigation. We all witness that its struggle against Facebook is
anything but a huge success. Instagram founders have chosen a second road, got a huge pile of US
dollars in Facebook stock and then seen their ig slowly mutating to a biggest and most popular social
network, even though it hardly resembled the original product anymore. b. Negotiation points
In 2012, Facebook acquired Instagram for $1 billion after Instagram's initial offer to sell for $2 billion.
Facebook CEO Mark Zuckerberg convinced Instagram founder Kevin Systrom to lower the price and
accept part of the sale in shares, promising that it would be a valuable investment after Facebook's
IPO. Many people initially criticized the high price tag of the deal, but Instagram's continued success
and revenue from advertising have proved its worth. As of 2019, Instagram generated $20 billion in
revenue. This negotiation highlights the importance of strategic thinking, flexibility, identifying
synergies, and keeping an open mind in dealmaking. lOMoARcPSD| 38777299 Facebook WP/T AP P $ 1B $ 2B Instagram IO WP TP
Target point (Aspiration point): In this case, Facebook wanted to buy Instagram for $1 billion, which
includes both cash and stock, therefore, Facebook's Target point is $1 billion. And Instagram's Target
point is $2 billion because Instagram wanted to sell it back to Facebook for $2 billion.
Walkaway point (Resistance point): Facebook and Instagram both have a Walkaway point level of
$1 billion. Therefore, the negotiation between Facebook and Instagram is successful because the settlement range is small.
Asking price, initial offer point: Initially, Instagram made an offer to sell to Facebook with the price
of $2 billion, so the initial offer point is $2 billion. However, Facebook offered to buy back $1 billion,
including cash and stock. Therefore, the asking price is $1 billion.
1.3. Changing settlement range in a positive direction
Both parties in distributive bargaining know that they might have to settle for less than what they would
prefer (their target point), but they hope that the agreement will be better than their own resistance
point. To make settlement range changes positively, we make the negotiation come closely to
agreement between parties. In this case, Instagram agreed to sell it to Facebook for $1 billion instead
of $2 billion because CEO of Facebook persuaded that it would be a big bargain for Instagram when
1% of Facebook's shares would be worth $2 billion if the company's market capitalisation surpassed
that of Google, which is $200B or more. The walkaway point of this negotiation of both sides is $1
billion, including Facebook’s share. 1.3.1 Lessons learned
From the negotiation, we give out some lessons:
● Firstly, competitors are one of the success or failure of the business. Realizing the value of
Instagram, Facebook bought Instagram for 10 times the value of it.
● The second one is consistency. When Mark chose to purchase Instagram, there were many
opposing viewpoints, but as of right now, this is the best business decision Facebook has ever made.
● Finally, they should recognize your own shortcomings to improve them better. Instagram is
expanding quickly, however Facebook is not a corporation that specializes in producing mobile
applications, so it lacks experience in this area. Possibly as a result, Facebook purchased Instagram. lOMoARcPSD| 38777299
2. Commonalities and differences
2.1. Key commonalities and differences of two parties
The acquisition of Instagram by Facebook had several commonalities. Both parties wanted to reach a
favorable deal that would benefit their respective interests. They recognized the value of Instagram's
user base and its potential for growth, and had an interest in expanding their reach in the social media industry.
However, there were also some differences between the two parties. Facebook had already acquired
several other companies before acquiring Instagram, while this was Instagram's first significant
acquisition. Facebook's primary objective was to eliminate competition and gain access to Instagram's
user base, while Instagram was interested in securing financial stability and growth opportunities.
Additionally, Facebook had a larger user base and more financial resources than Instagram, which
gave it more leverage in the negotiation.
Besides, Instagram's founders, Kevin Systrom and Mike Krieger, were concerned about maintaining
the independence and creative control of the platform after the acquisition. They wanted to ensure that
Instagram would continue to operate as a separate entity. In contrast, Facebook was interested in
integrating Instagram's features into its own platform to increase its market share.
2.2. Pros and cons of companies
In the negotiation of Facebook purchasing Instagram, the two main parties involved were Facebook
and Instagram. Here are some advantages and disadvantages for each party, which are demonstrated in the following table: Company Advantages Disadvantages
● Strong financial position ● Regulatory scrutiny
Facebook had a strong financial The acquisition could attract position and
could afford to make a regulatory scrutiny and antitrust sizable acquisition
without concerns, which could delay or even
prevent the acquisition from going
overstretching their finances. through.
● Access to Instagram's user ● Integration challenges Facebook base
Integrating Instagram's operations
Facebook already had a large user and technology with Facebook's base, so
acquiring Instagram would existing systems could prove to be a
significant challenge, requiring time
only add to its existing network
and resources to overcome. effects. lOMoARcPSD| 38777299
● Consolidation of the social
● Concerning about future media market Facebook had to navigate the
Consolidate Fb's position as the concerns of Instagram's founders about maintaining the independence
dominant player in the social media and creative control of the platform
market, making it harder for after the acquisition. competitors to gain a foothold. ● High valuation
● Loss of independence
Instagram had a high valuation, which The acquisition would mean that gave
them leverage in the negotiation Instagram would lose its process and allowed
them to negotiate independence and become part of a favorable terms for the
acquisition. larger corporate entity. ● Access to Facebook's ● Potential changes to Instagram resources Instagram's culture
Instagram would gain access to It could result in changes to Facebook's vast
resources, including Instagram's culture and working its technology, data
analytics, and environment, which could be advertising capabilities. unsettling for employees.
● Exit strategy for investors ● Uncertainty about the The acquisition would provide an future
attractive exit strategy for Instagram's Instagram's future within Facebook
investors, who could cash out at a could be uncertain, with potential significant
profit. changes to its strategy, product roadmap, and leadership.
2.3. Maximizing commonalities and minimizing differences
Increasing similarities and minimizing differences between parties in a negotiation can help create a
positive negotiating environment and improve the likelihood of an agreement between the parties.
Having commonalities can create a shared goal and make it easier to reach an agreement, while
minimizing differences can help parties find common ground and optimal solutions. Failure to
minimize differences can lead to tension and failure to reach an agreement. Increasing similarities and
minimizing differences are important in creating a positive negotiation environment and reaching an
agreement effectively and fairly.
There are some ways to increase similarities and minimize differences between parties in the
negotiation between Facebook and Instagram:
● Firstly, parties should identify common objectives and goals: This could be increasing user
engagement, driving ad revenue, or expanding their user base. By focusing on shared goals, 2 lOMoARcPSD| 38777299
parties can work towards mutual benefits and increase commonalities between the two platforms.
● Secondly, they also could find areas of overlap which could be features, audiences, or
branding: They can leverage them to create a more integrated experience for users and increase
the commonalities between the platforms.
● Besides, clear communication is one of the best ways to increase similarities and minimize
differences: Being clear about parties’ goals, expectations, and concerns to avoid
misunderstandings and find solutions that work for both Facebook and Instagram.
● Finally, two parties should be open to compromise: Both Facebook and Instagram will have
their own priorities and goals, and it's important to find a solution that works for both parties.
Which leads to them finding a solution that maximizes the commonalities between the two
platforms while minimizing differences.
2.3.1. Proposing a suitable negotiation approach
In this case, a suitable negotiation approach could be the Win-Win Negotiation approach.
Here are some possible points that Facebook and Mark Zuckerberg could have mentioned during the
negotiation to achieve a win-win outcome:
● Facebook could have highlighted the benefits of an acquisition of Instagram, such as increased
user base, better technology resources, access to Facebook's advertising platform, autonomy,..
● Facebook could have also emphasized its commitment to protecting user data and privacy, and
assured Instagram that it would not compromise its users' privacy or data security. Moreover,
the Instagram founders could have mentioned the following points to achieve a win-win outcome:
● They could have emphasized the importance of creative control and maintaining Instagram's
unique features and user experience.
● They could have requested that Facebook allow them to continue making independent
decisions regarding the product, user engagement, resources, branding, trust, and the platform
being referred to as "Instagram from Facebook".
Through the Win-Win approach,they could potentially create a larger market and grow the industry as
a whole, while still maintaining their unique brand identities and competitive advantages. 3. Powers and risks
3.1. Key sources of power of each side
When Facebook was negotiating to buy Instagram, both sides had different sources of power that they
could leverage to influence the outcome of the negotiation. In this context, understanding the sources
of power that each side had is critical to understanding the outcome of the negotiation and the impact
that it had on the social media industry as a whole. lOMoARcPSD| 38777299
a. Facebook's key sources of power
During the negotiation for acquisition of Instagram, Facebook had several key sources of power that it
could leverage to influence the outcome of the negotiation.
One of the most significant sources of power for Facebook was their access to a wealth of user data.
Facebook has been collecting data on its users for years. This data can be used to identify trends and
develop strategies that can be used to support their bargaining position.
Another important source of power for Facebook was their power based on resource control. Facebook
had significant financial and technical resources at their disposal. They could make an attractive offer
to Instagram, which reportedly was around $1 billion, to buy them out.
Additionally, Facebook's technical resources could be used to support the integration of Instagram into
their existing platform, making it easier for them to expand their reach and engagement.
Finally, Facebook's size and user base gave them significant network effects, which can make it
difficult for Instagram to compete. Facebook had over 800 million users at the time, which gave them
a significant advantage over Instagram, which had around 30 million users.
b. Instagram's key sources of power
On the other hand, Instagram had several sources of power that it could leverage to influence the outcome.
First of all, Instagram had access to a vast amount of user data. Instagram could use this data to show
Facebook the value of the platform and how it could be integrated into Facebook's existing ecosystem
to create even more value for users.
Another source of power for Instagram was its unique features. Instagram allowed users to share
images, short videos, and unique photo filtering features that set it apart from other social media
platforms. These features could be used as leverage in the negotiation, as they were valuable to
Facebook and could be integrated into their existing platform to improve user engagement and retention.
Instagram's focus on visual content was another source of power that it could leverage in the
negotiation. Instagram's emphasis on visual content sets it apart from other social media platforms,
which could provide unique opportunities for Facebook to expand its offerings and appeal to users
who prefer a more visual experience. This could help Facebook maintain its relevance with younger
demographics, as Instagram had a reputation as a platform that appeals to younger users.
Finally, Instagram's best alternative to a negotiated agreement (BATNA) was also a source of power
that it could leverage in the negotiation. If Facebook had not come to an agreement with Instagram,
Instagram could have been sold to Twitter - a direct competitor of Facebook. This gave Instagram
significant leverage in the negotiation, as Facebook would not want to lose an acquisition target to a competitor. lOMoARcPSD| 38777299
3.1.1 How to increase their power in the negotiation
To increase their bargaining power during the negotiation for the acquisition of Instagram, both
Facebook and Instagram had to consider different strategic options to influence the outcome in their
favor. Here are some ways in which each side could have increased their power during the negotiation:
Facebook's massive user base, financial resources, and the potential for integration were their primary
sources of power. Facebook could leverage these sources of power by emphasizing the potential for
synergies between Facebook and Instagram, offering a larger financial incentive to Instagram, and
showcasing how Instagram's unique features could be integrated into Facebook's existing platform.
● Facebook's massive user base gave them leverage in the negotiation since it would provide
Instagram with the opportunity to access a broader market, potentially expanding Instagram's user base.
● Facebook could also offer Instagram the chance to take advantage of their existing resources,
such as data storage, engineering, and marketing resources. By emphasizing the potential for
integration, Facebook could demonstrate to Instagram how a merger could create a more
comprehensive and powerful social media platform.
● Furthermore, Facebook could use its financial resources to sweeten the deal for Instagram,
making it difficult for Instagram to refuse the acquisition offer.
On the other hand, Instagram had access to a vast amount of user data, unique features, and a younger
demographic that could appeal to Facebook. To increase their bargaining power, Instagram could
highlight the value of their user data and unique features, showcase their youthful appeal, and
emphasize their best alternative to a negotiated agreement (BATNA) - the potential acquisition by Twitter.
● Instagram's vast user data was a powerful bargaining chip as it would provide Facebook with
access to valuable demographic information, which they could use to improve their advertising targeting.
● Furthermore, Instagram's unique features, such as photo filtering and visual focus, could add
value to Facebook's existing platform, especially since visual content has become increasingly popular on social media.
● Instagram's younger demographic could also be a valuable asset for Facebook, which could
help them maintain their relevance with younger generations.
● By emphasizing their BATNA, Instagram could demonstrate that they had other potential
suitors in the industry, making it clear to Facebook that they were not the only option.
Instagram's youthful appeal and unique features would make them an attractive acquisition
target for Twitter, Facebook's direct competitor. 3.2. Negotiation Risks 3.2.1 Possible risks
Negotiations can be complex and challenging, particularly when there are differences in interests,
values, power, information, and time pressure. The negotiation between Facebook and Instagram for lOMoARcPSD| 38777299
the acquisition of Instagram is an example of how these dimensions can cause potential negotiation impasses.
One of the primary risks in this negotiation was the difference in valuation. Facebook and Instagram
likely had different ideas about the value of the acquisition. If Facebook had a much lower valuation
in mind than Instagram's owners, Instagram may have felt undervalued and may not have been willing to accept the offer.
Another potential cause for negotiation impasse was the differences in strategic vision. Facebook and
Instagram could have had different ideas about the future direction of the social media industry. For
example, Facebook may have seen Instagram as a way to expand its reach and maintain its dominance
in the social media space. Meanwhile, Instagram's owners may have had a different vision for their
platform's future. However in reality, they have the same view in vision (we mentioned before)
Power dynamics may be a risk. Facebook was a much larger and more powerful company than
Instagram at the time of the acquisition. This could have made Instagram feel pressured into the deal
and created a tense negotiating environment. Additionally, if Facebook had more bargaining power in
the negotiation, they may have been able to push for more favorable terms, which could have led to an impasse.
Finally, information asymmetry was another potential cause for negotiation impasse. If Facebook had
access to confidential information about Instagram's financials or user data that Instagram was not
willing to share, it could have created a situation where Facebook was making demands that Instagram could not fulfill.
3.2.2. Our bringing out solutions vs the negotiation is in reality
To reduce the risk of an impasse due to differences in valuation, Facebook and Instagram engaged in
extensive discussions to better understand each other's perspectives and priorities. Mark Zuckerberg
invited Kevin Systrom to his mansion to discuss to better understand the needs of each party. Besides,
the fact that facebook offered a higher purchase price than twitter also showed that they had conducted
a more thorough valuation analysis. Facebook understood the value of Instagram, the company's
business, and the factors that could affect an acquisition. This research helped Facebook propose a
reasonable price of $1 billion. This price is lower than the price Instagram offered, but with cash and
shares of one of the fastest growing companies, Facebook gave Instagram more longterm economic benefits.
While there is a risk that a conflict of strategic vision can occur and lead to a deadlock in negotiations,
fortunately, both companies can define a common vision. Instagram and Facebook shared a similar
vision for the future of social media, with both companies focused on mobile-first experiences and
building engaging, visually-driven platforms. From there, a better development orientation for both of them.
The negotiations took place secretly at Zuckerberg's mansion and lasted for 4 days with the
participation of Mark Zuckerberg and the founder of Instagram and no one else. It also showed a desire lOMoARcPSD| 38777299
to consider each other's interests and concerns. They worked directly with each other to establish
mutual trust and respect. Thereby, the risk of power dynamics was greatly reduced.
In addition, we have some suggestions to help reduce risk. Facebook should present clear and
transparent terms and conditions to ensure Instagram's understanding and agreement. Providing
transparent terms and conditions will reduce the likelihood of disputes and differences in opinions
during the negotiation process. Besides, seeking the help of external advisors also helps them to have
independent, objective assessments and facilitates negotiations. III. CONCLUSION
In April 2012, Facebook acquired Instagram for $1 billion, in what was seen as a strategic move to
expand its mobile offerings and acquire a potential competitor. The negotiation took place over a
weekend, just days before Facebook's initial public offering (IPO), and was a clear win for Facebook.
Despite concerns about the high price tag of the deal and how it would affect Instagram's independence
and user experience, Facebook has largely kept Instagram as a separate platform with its own identity.
Today, Instagram has more than one billion monthly active users and generates billions of dollars in revenue for Facebook.
The negotiation between Facebook and Instagram provides valuable lessons for dealmaking. Timing
is crucial, as external factors can impact the value of a deal. The negotiation also highlights the
importance of focusing on long-term strategic value rather than just short-term financial gain. Being
flexible and adaptable in negotiations is also important, as negotiations can be unpredictable. Looking
for synergies between the two parties involved is crucial, as it can help drive the success of the
acquisition. Finally, the negotiation underscores the importance of keeping an open mind when
entering into negotiations, being willing to consider all options and possibilities. By applying these
lessons, negotiators can increase their chances of achieving successful outcomes in their own negotiations.
Through this, we would like to express our deep gratitude to Associate Professor, Dr. Vu Thanh Hung
for creating favorable conditions and always providing timely feedback so that we can complete this assignment in the best way. IV. REFERENCES
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lathuong-vu-sang-suot-nhat-cua-facebook/.
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Available at: https://www.cbsnews.com/news/facebook-to-acquire-instagram-for-1-billion/.
3. CNBC.com, A.P.and R.with (2012) Facebook buying Instagram for $1 billion, CNBC. CNBC.
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5. Approaches to negotiation (no date) PON. Available at:
https://www.pon.harvard.edu/tag/approaches-to-negotiation/ (Accessed: May 8, 2023).