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Here is why Facebook bought Instagram

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You might have heard by now that [company]Facebook[/company] has acquired Instagram for nearly a billion dollars in cash and stock. Incredible, isn’t it? I have received text messages of awe and shock from many people in the Valley, for no one saw this coming.

A few days ago it was rumored to be valued at $500 million. A few months ago it was $300 million. Its last round — just a year ago — valued the company at $100 million. The rising valuation of the company was reflective of the growing audience it has been garnering, despite being just on the iPhone. It had reached nearly 30 million registered users before it launched an Android app, a turbo-charging event for the company.

So the question is:  Why did Mark Zuckerberg, Facebook’s level-headed but mercenary founder, buy Instagram at twice the valuation that professional venture investors were putting on it? The answer is found in Zuckerberg’s own blog post:

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. We don’t plan on doing many more of these, if any at all. But 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.

My translation: Facebook was scared shitless 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. Why? Because Facebook is essentially about photos, and Instagram had found and attacked Facebook’s achilles heel — mobile photo sharing.

Here is what I wrote when Instagram launched the Android app.

It is pretty clear that thanks to the turbocharge effect of Android, Instagram’s user base is going to blast past the 50 million mark in a couple of weeks. Just before the company launched its app in October, I had pointed out that there was going to be a mobile-only, photo-oriented social platform that will challenge the established social giants. It will be a summer to remember for this tiny company.

Here is another little bit from one of my Om Says newletters:

The company had announced an API in February, and since then a raft of new apps have come up to capitalize on it. While filters might have jumpstarted Instagram, the company, which already has over 4 million subscribers, has to focus on its core value proposition – community and the social interactions around unique visual experiences.

I hope Instagram allows more apps to export directly to its network. By opening itself up to other apps and services, it has the potential to slowly become the hub of our mobile photo experiences. And in the end, that’s what would make Instagram so much more valuable and in the process become the Flickr of mobile photos.

In other words, if there was any competitor that could give Zuckerberg heartburn, it was Systrom’s posse. They are growing like mad on mobile, and Facebook’s mobile platform (including its app) is mediocre at best. Why? Facebook is not a mobile-first company and they don’t think from the mobile-first perspective. Facebook’s internal ideology is that of a desktop-centric Internet company.

Instagram is the exact opposite. It has created a platform built on emotion. It created not a social network, but instead built a beautiful social platform of shared experiences. Facebook and Instagram are two distinct companies with two distinct personalities. Instagram has what Facebook craves – passionate community. People like Facebook. People use Facebook. People love Instagram. It is my single most-used app. I spend an hour a day on Instagram. I have made friends based on photos they share. I know how they feel, and how they see the world. Facebook lacks soul. Instagram is all soul and emotion.

It is one of the reasons I connected with the app even before it launched. It went deeper than just a photo app. Over the years, Kevin shared his grand ambition about Instagram and building a much larger platform, so from that perspective I guess I am a little surprised – though I thought Kevin and his team would go a lot further, for as Erica pointed out last week, the best is yet to come for mobile photos.

More importantly, it cracked the code where Facebook itself failed: viral growth on mobile. From that perspective I wonder if Kevin sold too soon, though I know it is easy for me to say. But then the road from product and a platform to a business is long, twisted and full of potholes. Perhaps that explains why the Instagram team decided to cash in their chips.

189 Responses to “Here is why Facebook bought Instagram”

  1. Michael Magee, PhD

    When you get a bunch of developers that understand emotional design as well as great technical design you’ve got a killer combination. I’ve met a lot of brilliant programmers that don’t have the emotional IQ to build for the emotional needs of their users, Instagram did, I only hope Facebook doesn’t strip that away from them.

  2. Instagram is not the key of this assimilation. It is the overnight meteoric rise of Pinterest that Facebook is really afraid of. Instagram is fb’s only chance at maintaining parity above the pin…

    Regards,
    Mikel King

  3. Michael J Lis

    Great article and in my view entirely true. Facebook has become a social utility and Instagram is a social passion. The same could be true about mobile, at one time Facebook has one, that’s right one developer that created its iPhone app. Mobile will rule everything some day and Facebook knows that.

  4. Scott Fink

    have you guys ever heard of Photorankr.com? While instagram sells out to facebook, Photorankr hasn’t hit mainstream yet, and is still a great place to post your work and get real feedback for people who love photography. It’s got the social networking side too, because you can follow other photographers to build your own photostream of your favorite work. Anyone can sell their photos and you maintain the copyright. check it out http://photorankr.com

  5. Lyndon Samson

    I hate typing things in twice… the outsourced identity management seems to have a few kinks…

    I will never understand what becomes trendy in the US. A MMS replacement based on the internet. With Filters, Filters? No one uses sepia on their actual digital camera, why would they use it on shared pictures? These acquisitions are usually for the user base, surely instagram users are a subset of FB users with a high degree of overlap, it can’t be for the technology which doesn’t seem like it would take much effort to duplicate.

  6. Geir Freysson

    If “instagram” becomes synonymous with online photo sharing, like “googling” is for search, that’s incredibly valuable and goes a long way to justifying the price tag.

  7. Hugh Siandula

    Plumbing is only a component of the house. Similarly Instagram is only a component of the mobile online experience. No matter how well u so your plumbing, beating the guy building the house (in revenue) is not possible

    The big Q is does Facebook enjoy the position of main contractor. As other contributors have suggested, there’s a big gap between idea and business success. Let’s think what other aspects of Facebook may need injection of genius (the photo filter is done)

  8. Ron Miller

    Facebook was afraid of Instagram? That’s your theory? I find that very hard to believe, Om, but I’ve been searching for a reason why they would overpay by so much and I still don’t get it. I’m not buying the idea they feared Instagram that much. Perhaps because I’ve never gotten into Instagram I don’t get this, but this seems a bit over the top to me.

  9. True to be told – the number of posts from FB users are declining while instagram users are posting even more experiences. Mark know it and react before its too late.

  10. Mrinal Singh

    Will we ever see user exhaustion from Facebook. Aristotle said “Man is a social animal” and that is a need that Facebook is fulfilling and that too quite well, but with its record of user privacy, will it continue to be on its juggernaut?

    In my opinion for some users independent services in bits and pieces are better than one whole solution.

    There might come a time when people will move to a combination of Hotmail, LinkedIn, twitter and Pinterest.

    Mrinal Singh

    Web Presence
    http://www.linkedin.com/in/mrinalsingha

  11. Ankur Nair

    I guess Facebook was fascinated more by a small module of Instagram so that they could include it (impressive how they thought) , but ended up spoiling the actual purpose of Instagram (pissed off !!)

  12. What Nonsense!! Facebook Is trying so hard to run other companies into the ground! What could this mean though? Does this mean we’re going to post to Facebook via instagram? (°_°) I know what should happen, we should do ,like, an online petition/ maybe Zuckerberg will try something else.! Wimp

  13. Bob Farrell

    It seems your entire argument is hinged on this one statement: “Because Facebook is essentially about photos”. Even if I ignore the overly-poetic, sensationalist drivel in the rest of the article I still see little or no journalistic merit to the post. What it seems to say is that you think Instagram is cool and that you have some resentment for Facebook.

  14. vishrut

    It is a bullshit comparison. Both the companies have their own identity, and why every point of view has been written as a jealous lover (for FB). FB bought Instagram because it has the resources to do so.

  15. James Preston

    Great article. Fantastic reading! I hear you about Kevin seemingly “selling out”. But does it not seem like Zuckerberg and team bullied Kevin into selling using all their clout?

  16. Sergi Martorell

    Agree completely. Facebook is about photos and Facebook lacks mobile expertise. Both enough reasons to acquire Instagram. But I also think the move and price tag is influenced by the fact Facebook is about to go public. In a way, it justifies the $100 billion valuation. It feels like a strategic buy to drive the public markets psychology. Smart move albeit quite pricey.

  17. Tyree Byndom

    Instagram sucked. I used it and didn’t like it at all. People download all of the top 25 free apps. I have over 400. I delete them quick if they dont catch me. I guess people liked the instagram one. I think that it was more bandwagon than anything else. Still, it was good to see their lives changed. Apps are people. Even though we see them as simply apps.

  18. webzplus

    WOW, I can’t believe that Facebook can see the value in this, at just over $30 per acquisition and with many if not all of the Instagram users ALREADY on Facebook this would add little if any value to Facebook (unless of course you count the fact that Facebook is boring and stale) – with a mere 0.04 percent of the share of users that Facebook has it would take a lot to convince me to part with this much money without having a sound crack at making a clone first – be very interested to see how many other people think that a Instagram clone might their ticket to success online, I don’t think we’ve heard the end of this yet.

  19. webzplus

    WOW having looked at Instagram and found nothing to interest me (I am a 47 year old male from Australia) I find it amazing that Facebook would pay just over $30 per acquisition for a list of users who would largely already HAVE a Facebook account – IMO this is the start of a spiral out of control, buy Instagram, then maybe Pinterest all because the User Experience at Facebook is becoming tired and somewhat annoying to both individuals and businesses, heck if you’re not playing games, liking somebodies comments about the weather or looking at other mind numbing stuff Facebook is becoming quite shallow, 30 Million (Instagram) Users is a tiny 0.04 percent of Facebooks… I think I would have waited a little longer before I got the cheque book out, unless of course the sharks were already circling :-)