Monday, April 9, 2012

Facebook Buys Instragram for their ....?

$1 BILLION dollars.

That is how much Facebook is "paying" for a service that allows users to take photos from their phone, apply some filters, and upload it to the web, and share it over Facebook and Twitter.

The verb paying is in quotes because we don't know how much of the transaction is in cash and how much is in stock. Did Facebook mention $1 Billion based on a projected valuation of Facebook stock post-IPO or current valuation in the secondary market? Either way, it is still a lot of money.

What motivated Facebook's decision to purchase Instagram? Let's consider a few options:
  • Customer Acquisition
    Doubtful. Facebook has over 800M users and Instagram has about 30M users with about 300M monthly page views (eMarketer, Kimberly Maul, Feb 2012). It's a safe assumption that most Instagram users are already Facebook users.
  • Defensive Move
    Perhaps another competitor was in talks to buy Instagram so Facebook acted swiftly and decisively. It would be a strong signal to send to Google, but is it necessary? Don't think so.
  • Talent Acquisition
    While I'm sure this was a factor, it wouldn't justify a $1 Billion price tag.
  • Strategic Entry into Mobile
    Instagram has figured out how to capture people's attention on their mobile app. It has a great user experience, allowing folks to look at other people's photos and see the stories. Facebook's mobile app is fairly clunky and not conducive to photo viewing. Facebook could build their future mobile app around the Instagram foundation.
  • Buy into User Behavior
    As mentioned in a previous post, it's really hard to change user behaviour. Consider the following assumptions:
    • On Instagram, users explore and comment on artistic photos (made easier to generate with the filters), continuing to look at unique photo after unique photo, ultimately wasting a lot of time on their mobile phone. A great opportunity for ad placements.
    • On Facebook, users comment on their friend's drunken antics and move on once they've gone through the entire album.
    Rather than build something similar and hope users switch, Facebook just bought them out, hoping to monetize their users' behavior on a mobile platform.

    Here's an interesting stat: 64% of those surveyed said they view photos on their mobile phone  while only 39% said they use the phone for updating a social networking page*. (see image below)

    Instagram is the foundation of the Facebook's mobile strategy, giving Facebook access to a medium that captivates a user's attention on their mobile device. With Facebook's vast resources, they can easily expand the userbase beyond the current 30M userbase.

    Looks like Instagram is a lot more than just a fancy image filter service. To answer the question posed at the very top, Facebook is buying Instagram for the relationship they've built with the users.

    Is that worth $1 Billion dollars?

    Time will tell.
* Thanks Vivek for correcting my earlier interpretation.

1 comment:

Mal said...

I heard that Zuckerberg wanted the "Amaro" filter setting so he could use it for his hunting photos. Instagram said no so he bought them out.