Instagram is a mobile photo sharing app. Some might say it’s a micro blogging site for users to share their life through photos, in a similar way that Twitter does with words.
Of course it is the simplicity of Instagram as a concept that has gained it such huge success since launching in October 2010. In the same way as Twitter did back in March 2006 (was it really that long ago!) it has taken one prominent feature of social networking and built an app around it – this time photography. Another endearing feature is the app’s ability, through its filters and editing functionality, to make anyone look like a reasonably competent photographer.
Along came Facebook
It is with great envy that most people have been discussing the recent takeover of Instagram by Facebook. Is it any surprise when you learn that the company consists of 13 employees, is a year and half old and has just been bought for $1 billion! The general immediate reaction tends to be one of “Why the hell didn’t I think of that idea??”
So why is Instagram worth $1 billion and what does Facebook have planned for it? Maybe the simplest answer to the first question is userbase. In a year and half Instagram has grown to have 30 million users – a figure that increased by a further 10 million in the week following the acquisition. In comparison to Facebook’s 800 million users this may seem like small fry, but it is worth pointing out it took Facebook three years to reach that level of users.
A more cynical person could view this as a defensive maneuver. Whenever a digital acquisition takeover of this magnitude takes place one can’t help but think it is lead purely by a strategy to block others from having what is on offer – indeed the Guardian have a piece proposing that this acquisition exposes nothing more than Zuckerberg’s own insecurities. Brands likes Facebook and Google can launch a new product or feature tomorrow and people are guaranteed to sign up to it. Why buy an existing company and pay out all that money when you could just steal the idea and build it yourself? Because it helps eliminate a future threat…
There’s got to be more to it
At the point of Instagram being bought it has not being monetised – the company is running on venture capital investment. So how is Facebook going to utilise its €1 billion investment in a business with no demonstrated capacity for making a return?
One potential route was explored in display network Specific Media’s acquisition of MySpace – data! A photo application is capable of gathering information such as time of day and location, as well as that all too important social graph information. It has been reported that 20% of Instagram users connect with their Facebook account each month taking pictures in Instagram before uploading them to Facebook. This additional layer of data could prove valuable to Facebook’s already prolific advertising revenue stream as well as pave the way for their future mobile revenue. What’s more it also gives them a way to understand the connections of Instagram users who do not use Facebook.
Another potential source of value is UI (User Interface). At the moment Instagram is purely a mobile app, and a very polished one at that. Facebook was originally developed as a desktop site and I would argue mobile is still a massive area of development for them – a bolt on to the main experience. So in addition to data and security against a competitor Mark Zuckerburg has also just got his hands on a talented team of mobile developers. It’s also worth noting that Facebook have got their own separate messenger app, much like ‘Whatsapp’ – messages can be sent and received in the main Facebook mobile app already, the Messenger app just provides enhanced functionality. Much like that app, Instagram fits perfectly into this portfolio as a stand alone enhanced photo sharing app.
Google+ already has some really powerful photo editing tools, added through the purchase of the photo editing site, ‘Picnik’ in 2010, so from a pure photo editing point of view Facebook do have some catching up to do. Integrating Instagram photo editing tools into the Facebook app would be a step in the right direction, albeit an expensive one.
It wasn’t that long ago that Mark Zuckerburg was offered $1 billion for Facebook and at the time people questioned his decision to turn it down. This figure seems laughably small now given the company is about to float for an estimated $100 billion. Arguably the purchase of Instagram is not as big an investment as some may think – the latest rumours suggest the founders were pushing for twice the amount Facebook paid.
We may never know the exact motivation behind Zuckerberg’s purchase of Instagram, but it seems safe to assume it is some sort of combination of the above. Given the initial increase in new Instagram users since the acquisition combined with Facebook’s valuation it may well turn out to be a relatively safe and smart investment.