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Jack Dorsey Blew It Letting Facebook Buy HIS Investment, Instagram

How could Jack Dorsey let Instagram fall into Facebook's hands?

Dorsey – who is Twitter's creator, cofounder, executive chairman, and product boss – believed enough in Instagram to invest his own money in it.

Personally, this bet paid off when yesterday, Facebook bought Instagram for $1 billion.

But for Dorsey's company, this acquisition was very bad news.

One advantage Twitter always had over Facebook was that it was a superior product to use on your mobile device.

Specifically, it was a better, faster, easier way to take a picture with your phone and share it with your friends.

This has been especially true since Twitter bought iPhone app Tweetie a couple summers ago.

Now that advantage is gone. Facebook users who wanted a better way to share photos on mobile now have one less reason to become Twitter users.

The odd thing is that since Dorsey returned to Twitter in early 2011 improving the photo-sharing experience has been one of his top priorities.

He's tried a bunch of redesigns of Twitter.com and the Twitter apps, and they have been largely panned.

All along the solution was right under his nose.

Many Instagram users broadcast their photos over Twitter, giving Dorsey and company a first hand look at that growth. As an investor, Dorsey presumably had even deeper insight into Instagram engagement numbers.

After Jack's return in Q1 2011, Instagram grew from 1 million users in in January 2011 to 15 million in December 2011 to 30 million now. 30 million people (and growing by the second) is a big percentage of Twitter's active userbase, which the company says is 140 million people.

It would have been harder for Twitter to acquire Instagram for $1 billion than it was for Facebook. For starters, Twitter is an $8 billion company and Facebook is worth $100 billion on private markets.

But that's not an excuse. Back in 2002, Yahoo declined to buy Google for $5 billion because $5 billion was close to the size of Yahoo's own market cap. Obviously, Yahoo should have pulled the trigger. Google is now worth $200 billion, and Yahoo, $18 billion.

Dorsey made Yahoo's mistake. Before that, his first mistake was allowing Instagram to grow into a billion dollar company before making it an offer CEO Kevin Systrom could not refuse.

Now we're left to wonder if Twitter missed this opportunity to improve its product through acquisition because its product visionary is too busy running another company.

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