Instagram, with its 30 million users, the majority of which are young, (compared to Facebook’s ageing membership as its popularity grows amongst parents and grandparents) has been scooped up by Facebook for a mere one per cent of its market cap.
It is hard to knock a company looking set to debut in the public markets with a $100 billion valuation and 845 million friends, but if we did, Facebook’s mobile technology is an easy target. Put simply: Facebook’s app just doesn’t work very well. Apple iOS users and Google Android users both complain. It doesn’t load at worst. At best it is slow and jerky.
This would seem like an easy fix, and why wouldn’t Facebook just do it? They have the funds to invest.Mobile matters, of course, when you’re business is connecting people and content, real-time.
But then think of the underlying complexity. Facebook is relaying us a lot of information very quickly. Some these data spurts are trivial; some aren’t. Feeds of all sorts of shapes and sizes that are changing constantly. Elegant apps tend to be much more simple in what they actually deliver us. Facebook likely faces a real challenge here.
So perhaps a deep mobile understanding is one of the things Mark Zuckerberg sought out in spending what seems like a tremendous sum, $1 billion, on the photo sharing app Instagram.
Sure, the company didn’t have revenues, which on the surface makes the $1 billion valuation laughable and perhaps the surest sign yet techland is frothing. But talent is expensive in Silicon Valley these days and competition is fierce. Kevin Systrom, Instagram’s CEO, really knows mobile and specifically sharing on mobile. His big goal for Instagram as he put it to Digg founder Kevin Rose was to be the place where you could “tune into anything on Earth”. Instagram’s success so far has been thanks to a fine combination of technology know-how and the right attention product detail. Those are highly prized skills right now.
10 Reasons Why Facebook Bought Instagram
1. Because it could. It’s fairly unusual for a company to drop a cool billion heading into its IPO, but Facebook already has a ton of cash on hand & thanks to private share sales to Goldman Sachs, says University of Notre Dame biz prof Tim Loughran. “Facebook, with huge cash on hand, is already acting like a big, publicly-traded tech company,” says Loughran. “Facebook didn’t need to go public first to get the cash to make the major acquisition.”
2. Because it didn’t want a competitor to snap it up first. “It appears that Facebook really wanted to purchase Instagram before another bidder (maybe Google) made the deal.”
3. Because Facebook’s mobile app sucks. Instagram’s doesn’t. “Will this deal look cheap in two years? Probably, if Facebook works on your phone.”
4. Because Facebook is having a midlife crisis, and the acquisition of the beloved, hip photo-sharing app is its equivalent of buying a sportscar. The universal consensus is that Facebook isn’t cool anymore. It’s got wrinkles, or at least many more users with wrinkles. By buying Instagram, Facebook bought itself 30 million hipsters, and all of their wonderful hipster cool.
5. Because most people are on Facebook to look at other people’s photos, and Facebook wants to keep it that way. Now you’ll be able to add all kinds of cool filters to your Facebook photos, a feature that attracted over 30 million people to Instagram. “Providing the best photo sharing experience is one reason why so many people love Facebook and we knew it would be worth bringing these two companies together,” said CEO Mark Zuckerberg. “Facebook was scared and knew that for first time in its life it arguably had a competitor that could not only eat its lunch, but also destroy its future prospects.”
6. More data. Which translates into better mobile ads. Instagram has a better idea of what its users are doing and what they like doing. “If you are a skiier, you take pictures of snow and skiing. If you are a foodie you take pictures of food at high-end restaurants. If you are into quilting, a lot of your photos will be of that,” writes Scoble at Quora. “Facebook’s databases need this info to optimize the media it will bring to you. Imagine you’re a ski resort and want to reach skiiers, Instagram will give them a new way to do that, all while being far more targeted than Facebook otherwise could be.”
7. Because it wanted to buy soul. Facebook has become a huge, money-making behemoth, which makes it very attractive to investors but makes it slightly harder to take Mark Zuckerberg seriously when he waxes poetic about the Hacker Way. The users of Instagram are still enamored of their little app, so much so that they feel outraged about it selling out. “Facebook bought the thing that is hardest to fake. It bought sincerity,” says Paul Ford at NYMag.
8. Because it’s cheaper than inventing a time machine. “Before Instagram, if I wanted my pictures to look like they were taken in the ‘60s, I’d have to invent a time machine and travel back 50 years,” said one of the Daily Show’s “youth” correspondents.
9. Because it wanted an upscale version of Facebook to keep the digital upper class happy. Just as Williams Sonoma created West Elm for those who turned up their noses at Pottery Barn, Facebook needs a place where its users can hang out where they won’t run into the “technological laggards.” “Facebook is not the preferred destination or permanent mailing address of the digital upper class,” writes Carles at Grantland. “While Facebook became one of the most valuable sites on the Internet by allowing mass-market audiences to participate in ‘life’ as we now know it, it is still under the threat of becoming an impersonal experience without constant innovation that is aimed at making users feel like they are building something meaningful as they upload their ‘lives’ to the social network. Being on Facebook just doesn’t make you feel like a VIP.”
But being on Instagram does, in part because it has been the exclusive provenance of iPhone users for so long. When it finally released a version for the Droid, I snapped it up immediately.
10. Because it’s scared. “Young hot technology companies are nothing if not aware of their mortality,” write Nick Bilton & Somini Snegupta at the New York Times. “Because so many started out by wounding an older tech giant, they know they can be killed, or at least severely injured, by that which lurks in the rented office space of Silicon Valley — an even hotter, younger technology company.”
The news might explain why Facebook paid such a high price for Instagram, which currently has just 13 employees and makes no money. That the price tag indicated an “anti-competitive element”. Instagram is an app that allows users to add vintage effects to smartphone photos. It also serves as a standalone social network, allowing users to share their photos with friends outside the boundaries of Facebook and Twitter. The app will be valuable to Facebook, not least because of its 30 million-strong user base.
The photo sharing application Instagram was becoming so popular so quickly that some feel Facebook saw it as a threat. John Blackstone reports this might be the reason why the social networking giant ‘Facebook’ bought the company for double its estimated value. It’s want to turn the competitors to the allies.
Will Instagram Ever Expand to More Social Networks?
According to Mark Zuckerberg, Facebook plans to preserve Instagram’s ability to post to other social networks. At the moment, however, the only other social networks Instagram supports are Twitter, Foursquare and Tumblr. What happens if more direct competitors such as Google+ or Path release the necessary tools to support photo uploads from Instagram? Somehow I doubt that a Facebook-owned Instagram will be enthusiastic about supporting those other networks.
What’s Facebook Planning, Anyway?
That’s the billion dollar question. So far, Zuckerberg has made vague promises to “learn from Instagram’s experience to build similar features into our other products.” But Facebook already offers Instagram-like hipster filters, at least in its desktop software, and its social infrastructure for photo sharing was rock-solid long before Instagram showed up. Assuming Facebook didn’t simply acquire Instagram out of fear, we still don’t have a good explanation for what Facebook wants to get out of the service.
Copyright 2012 by Forbes.com, New York Times, CBS News & TIME Techland.com