The two founders of Instagram announced in a surprise move Monday that they were leaving Facebook, amid reports of disagreements with Facebook founder and Chief Executive Officer Mark Zuckerberg over the photo app's direction.
Kevin Systrom and Mike Krieger said they were "ready for their next chapter" and that they 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, Instagram's chief executive, said in a statement. "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."
Zuckerberg praised the founders in a statement.
"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."
Despite the parting pleasantries, there had been growing tensions between Instagram's founders and Zuckerberg about the future of the app, Bloomberg reported.
Systrom and Krieger, who had been at the company since Instagram's acquisition by Facebook in 2012, had been able to keep the brand and product independent while relying on Facebook's infrastructure and resources to grow. Lately, they were frustrated by an uptick in day-to-day involvement by Zuckerberg, who has become more reliant on Instagram in planning for Facebook's future, said people who were familiar with the matter and asked not to be identified sharing internal details.
Analysts say the tension between the executives was likely about maximizing Instagram's revenue-generating potential.
"Our sense is the duo may have wanted to run Instagram more independently than their parent company wanted," Scott Kessler of CFRA Research wrote in a research note Tuesday. "Facebook has been focusing on monetizing its assets and offerings, and we have noticed more and more promotional activity on the Instagram platform."
Krieger and Systrom built Instagram and sold it to Facebook for $715 million in 2012. When the deal was announced, the company had only 13 employees and 30 million registered users. More than 1 billion people now use the app monthly, and it is the main source of advertising revenue for Facebook outside the social network's main news feed. A Bloomberg Intelligence analysis in June said Instagram is worth more than $100 billion.
While Facebook has weathered scandals on privacy, fake news and election interference, Instagram's brand has remained mostly untarnished and has continued to quickly add users. With more than 2.2 billion users, Facebook is running out of people to sign up for its social network and can only push so many advertisements into its news feed. That means it has become increasingly dependent on the stand-alone photo-sharing app for its future.
Instagram attracts a younger cohort of users who are critical to Facebook's growth. Facebook users also have been flocking to Instagram as an escape, tired of the political bickering and privacy scandals that plague the parent company. Users averaged 53 minutes a day on Instagram in June, just five minutes less than on Facebook, according to Android data from the analytics company SimilarWeb.
Instagram is on track to provide Facebook with $20 billion in revenue by 2020, about a quarter of Facebook's total, Ken Sena, an analyst at Wells Fargo Securities, wrote to investors earlier this year.
The company recently launched Facebook Watch, a television-like platform that it's spent hundreds of millions of dollars on, mostly for content. That was followed by the rollout of Instagram's IGTV, an app that allows anyone to produce and post longer-form videos. Instagram has a more natural relationship with influencers, who have built up huge followings on the platform, so it hasn't had to pay for them to use the new feature.
In a July earnings call, company executives said revenue growth would slow in the coming years and that Facebook would have to spend more to expand. That announcement caused the biggest one-day stock wipeout in American history.
Menlo Park, Calif.-based Facebook is still a drag on technology stocks, which overall have propelled the U.S. market to record highs. Overall, shares of Facebook, Apple, Amazon, Netflix and Google have soared about 58 percent last year.
Facebook shares are down more than 6 percent this year after rising in each of the previous five years.
The company has started mentioning Instagram more frequently on its earnings calls and taking credit for its success. In the most recent call, Zuckerberg said Instagram grew twice as fast being part of Facebook as it could have on its own, a statement that many Instagram insiders felt was unnecessary and unprovable.
Information for this article was contributed by David Pierson of the Los Angeles Times and by Sarah Frier of Bloomberg News.
Business on 09/26/2018