For those of you haven’t heard (or been on Twitter in the last week), Instagram has been purchased by Facebook for 1 billion dollars. Mark Zuckerberg himself posted about the acquisition on his Timeline, shocking industry analysts, critics, and users the world over. Facebook normally does talent acquisitions like FriendFeed, Sofa, and Hot Potato – so why buy a mobile app like Instagram?
Instagram is a two year old photo sharing service founded by Kevin Systrom (the now 400 million dollar man) and Mike Kreiger (both of whom I saw speak at South by Southwest). Currently, it’s also a company with no revenue stream. Facebook has about 850 million active users, so clearly it wouldn’t help them to add Instagram’s 30 million users to the pile. Even though Instagram has a micro-social network built into it, it really poses no threat to Facebook, and Zuckerberg himself even said that the services are complimentary.
500 million dollars. That’s how much Instagram was valued at, mere days before the announcement went out that Facebook had decided to purchase the darling of all photo applications. They had also just secured $50 million in funding from Sequoia, Thrive, Greylock, and Benchmark. It was a strange series of events.
So Why Would Facebook Buy Instagram?
It’s actually quite clear. Back in February, Facebook submitted its S-1, filed with the SEC – a first step in their journey towards a public offering. Facebook stated multiple times in the S-1 that photos are an essential part of its strategy:
“We continue to invest significantly in improving our core products such as News Feed, Photos, and Groups, developing new products such as Timeline and Ticker, and enabling new Platform apps and website integrations.”
Facebook also mentioned in the S-1 filing that it could suffer without continued growth in user engagement around photos – and also said that mobile was a massive risk:
“Growth in use of Facebook through our mobile products, where we do not currently display ads, as a substitute for use on personal computers may negatively affect our revenue and financial results. “
All that being said, Facebook could increase engagement around photos and close the mobile gap by purchasing Instagram. Instagram has become known as the de-facto for iOS photos and photo sharing (and you can add another 5 million Android downloads to that). Facebook isn’t top of mind for mobile photos, and that was a problem (at least for their $100 Billion IPO).
My favorite part about this news is the mass hysteria in social media. There have been more posts about how to delete your Instagram account than there should be (see this post on the overreaction on Twitter) and too little congratulatory messages for the start-up.
Personally, I’m happy for Instagram. $0-$1billion in two years is really impressive, and Facebook has the funds to put behind the product for even more innovation that will ultimately make Instagram a better app for all of us. The good news is Facebook plans on keeping Instagram functioning separate from Facebook – so nothing really changes from a user perspective. Facebook gets the mobile talent they so desperately need (the Facebook app isn’t the best experience), and the people that work at Instagram get to have their laundry done at work.
What are your thoughts on Facebook’s billion dollar buyout?