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Instagram is the popular photo-sharing social network that debuted on the iPhone two years ago. (Just last week, Instagram launched an Android version of its app.) It combines a collection of preset photo filters with easy-to-use photo sharing capabilities. In the last two years, it’s attracted somewhere in excess of 30 million users. It’s also spawned dozens of imitation apps.
Facebook agreed to buy it for the enormous sum of one billion dollars (for a 2 year old company with 14 staff!).
While the deal may raise concerns about another technology bubble, the price tag is only about 1% of Facebook’s projected valuation when the world’s largest social-networking site sells shares to the public.
Some news agencies are reporting that Instagram also fielded an offer from Google in the last month or so, but that Facebook clinched the deal by doubling its last offer of $500 million. Instagram’s 13-member staff will be joining Facebook’s staff, but Facebook has pledged not to absorb Instagram. Rather, they’ll “continue to develop it independently.” (Kind of like what happened when Google bought YouTube.)
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What does this mean to Apple users? Likely nothing. Although a tighter integration with Facebook (despite Facebook’s promise not to remove Instagram’s connectivity to other social networks) could be a minor thumbing of Facebook’s nose at Apple. Reportedly, when Apple integrated Twitter-sharing into iOS and OS X, they attempted to do the same with Facebook but couldn’t come to an amicable agreement. For right now, nothing will change for iPhone Instagram users. But who knows what the future holds?
Prior to the Instagram deal, Zuckerberg had only purchased smaller companies, including e-book publisher Push Pop Press Inc. and mobile-messaging app Beluga Inc. Nothing came close in size to Instagram, an app used by smartphone owners to upload photos, color them with vintage effects and other filters, and then share them with friends.
“This is an important milestone for Facebook, because it’s the first time we’ve ever acquired a product and company with so many users,” Zuckerberg said in a statement.
But back to the issue at hand: Why is Facebook buying Instagram? It doesn’t need Instagram. What does Instagram bring to Facebook?
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Users? Instagram’s 30 million users are nothing to sneeze at, but even if not a single one of them were also Facebook users (which isn’t remotely the case), it barely holds a candle to Facebook’s 7 billion users.
Technology? Instagram doesn’t seem to have invented any new technology; it simply combines several existing technologies in an attractive, easy-to-use package. Instagram owns no patents that I can find.
Hardware? Whatever servers host Instagram’s social network can’t possibly compare to Facebook’s massive server farms.
Talent? Knowing very little about the 13 people who work at Instagram, I can’t speak to this. Measuring their talents and capabilities against Facebook’s army of employees is something that’s probably impossible to be objective about. But Facebook is largely staffed by developers (aka, software makers), so it’s hard to imagine that Facebook couldn’t do most, if not all, of the things that Instagram’s staff has done, if it so chose.
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| Systrom and Krieger: Laughing all the way to bank?? |
Regardless of all this… Instagram is unquestionably valuable. Its value has to stem from its popularity, since it’s unknown how Instagram’s been able to monetize its business — if at all. (The app is a free download, there’s no charge for using its services, and it serves no ads to its users.) So what’s the secret to Instagram’s success, and therefore its value? Put simply: Instagram was a good idea that struck its match at exactly the right moment!
But even that doesn’t present any obvious advantages to Facebook. Facebook users already share gazillions of photos with each other every day - both on the web and via Facebook’s own mobile app. And any developer in the world could come up with a set of pre-made photo filters.
So what does Instagram get Facebook? I see only two possibilities:
1) It gives them caché. Consider this: Facebook’s highly publicized IPO is coming up soon, and they might believe that a high-profile acquisition like Instagram will boost the attractiveness of their portfolio.
2) It eliminates a potential threat. Facebook is probably nearing its ceiling for new users, while Instagram’s star is rising, and has nowhere to go but up. There were rumors flying around a while back that Facebook was working on its own Instagram-type photo-sharing app for iPhone and Android, but despite some strong evidence of said app’s existence, it never materialized. Maybe Facebook figured it’d be easier to join ‘em instead of beating ‘em.
Which do you think it is? Might it be a combination of both?
Then again, Mark Zuckerberg is a known Instagram fan and user. So maybe he just wanted a shiny new toy to call his own.
That means Systrom built Instagram’s valuation from zero to US$500-million (Sequoia Capital value Instagram at 500 million dollar just before Facebook bought over) in two years, then doubled it to US$1-billion in a week. Despite the odds, (Kevin) Systrom and (Mike) Krieger always knew they are building a billion-dollar company.
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| Systrom and Krieger: Founder of Instagram |
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