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Why Instagram's founders are leaving Facebook

Why Instagram's founders are leaving Facebook
Instagram co-founder Kevin Systrom reportedly clashed with Facebook over the direction of his photo-sharing app. (Justin Sullivan / Getty Images)

As Facebook Inc.’s hottest property, Instagram appeared like one of its users’ carefully curated photos: trendy, attractive and spectacularly happy.

The resignations Monday of the photo-sharing app’s co-founders Kevin Systrom and Mike Krieger show that, like on many social media posts, things aren’t so perfect beneath the surface.

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The pair reportedly decided to step down because of growing tension with Mark Zuckerberg, Facebook’s chief executive, over the direction of Instagram.

Zuckerberg wanted the app to prioritize boosting revenue, knowing that Facebook was reaching a saturation point and could not sustain its high growth rates, analysts said.

That did not sit well with Systrom and Krieger, who founded Instagram in 2010 and sold it to Facebook in 2012 for $1 billion — a then-shocking amount that now looks like a bargain after Facebook bought WhatsApp two years later for $22 billion.

“One of the reasons the founders left is because Facebook has been forcing them to modify the site to maximize revenue for the last several years, and they feel dictated to rather than in complete control,” said Michael Pachter, an analyst for Wedbush Securities. “That’s the selling entrepreneur’s lament: if you take the money, you answer to a new boss.”

Facebook did not respond to questions about the tension. Systrom, who had been Instagram’s chief executive, and Krieger, who was the company’s director of engineering, could not be reached for comment.

In a prepared statement, the founders said they were “ready for [their] next chapter” and were grateful for the six years they spent at Facebook.

“We’re planning on taking some time off to explore our curiosity and creativity again,” Systrom said. “Building new things requires that we step back, understand what inspires us and match that with what the world needs; that’s what we plan to do.”

In a separate statement, Zuckerberg praised the founders.

“Kevin and Mike are extraordinary product leaders and Instagram reflects their combined creative talents,” he said. “I wish them all the best and I'm looking forward to seeing what they build next.”

With the founders gone, Zuckerberg now has nothing in his way to shape an app that’s become a cultural phenomenon by creating an ecosystem of highly polished influencers and inspiring legions of users to embrace exhibitionism.

Whether Zuckerberg’s free rein is a good thing or not depends on how seriously one weighs Facebook’s string of missteps the last two years. Among them: Downplaying fake news and foreign meddling, and failing to protect user data in the Cambridge Analytica scandal.

Those controversies have cast doubts regarding the company’s leadership, despite heady financial numbers that show Facebook generated more than $40 billion in revenue last year.

Investors seemed largely unbothered by the Instagram news, with shares of Facebook closing down Tuesday less than half a percent at $164.91. Still, the stock has shrunk nearly 25% since Facebook’s second-quarter earnings call-in when executives explained company growth would slow in the coming years.

Some experts say Zuckerberg deserves more credit for Instagram’s sharp growth. The app, which had 13 employees when Facebook bought it, now has a billion monthly users, 200,000 more than it did a year ago. Instagram could not have done it without access to Facebook’s resources.

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“The whole idea of joining Facebook was that we could scale way more quickly than we would independently,” Systrom told the Wall Street Journal Magazine in an interview conducted before he announced his resignation.

Instagram is projected to bring in $20 billion in revenue by 2020, equal to about a quarter of Facebook’s total revenue, according to Ken Sena, an analyst at Wells Fargo Securities.

“There’s a little overreaction to these two gentlemen leaving Instagram,” said Jason Schloetzer, a professor at Georgetown University’s McDonough School of Business. “They’re obviously important as founders of the Instagram concept, but Facebook has been able to digest what Instagram does and how it works since acquiring it. Facebook is more than capable of finding people internally who can competently operate the company after the founders’ departure.”

Adam Mosseri, who used to head Facebook’s news feed, was named Instagram’s head of product earlier this year and appears to be a top candidate to run the company, people familiar with the matter told Bloomberg.

Founders departing is nothing new in the tech industry. Apple and Microsoft have both continued to thrive without Steve Jobs and Bill Gates, namely because the companies had already matured.

“Kevin and Mike are unquestionably the creative forces behind what made Instagram what it is today,” said Steve Anderson, founder of Baseline Ventures and one of Instagram’s seed investors in 2010, “though today, Instagram could be considered mature and able for new talent to further its enormous success.”

1:15 p.m.: This article was updated throughout with additional details and analysis, and with Facebook’s closing stock price.

9:20 a.m. Sept. 25: This article was updated with more background, a statement from Mark Zuckerberg and comments from analysts.

This article was originally published at 8:50 p.m. Sept. 24

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