I love that companies like Instagram are happy to share this kind of information. I don't have the problem of scaling yet, but it's reassuring to know that when I do, there are good models like this one to follow.
Even if the deal might fall through, I could easily imagine Mike taking a day or two to celebrate instead of jumping back in and answering questions, particularly on the instagram-api list, since nurturing a slowly-growing ecosystem is not Instagram's best path to a successful exit. Logically, I think he did it because he's a nice guy.
I guess you could call it "attempted merger".
The purpose of a breakup fee is to compensate the target for costs associated with the failed acquisition and various other losses or expenses. Mostly however, a breakup fee compensates the target for business oppportunities not pursued while the acquisition was being attempted because of the acquisition.
In cases where the acquirer is a direct competitor to the target, the breakup fee guarantees that the acquirer can't simply look at the target's books and assets, walk away, and use that knowledge to clone the target's business, without paying for it.
I also did the same with all the folks who posted technical details on their experience dealing with the AWS outage. Great stuff to hold on to for future reference.