Blog Post

Here is why Facebook bought Instagram

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. BeckerTaylor

    my friend’s sister-in-law brought in $20631 the previous month. she is making cash on the internet and got a $473000 condo. All she did was get fortunate and profit by the information explained on this link (Click on menu Home more information)http://goo.gl/vZzEA

  2. Tero Lehto

    Or maybe the real reason is not the amount of users, but instead the ability to take advantage of GPS based location information from images taken with smartphones and many digital cameras too. It has been surprising Facebook hasn’t had this feature, and you have had to manually enter your location information to uploaded images.

  3. Patrick ONeill

    Interesting article. Rather than the photo sharing experience, it’s just strategically blocking someone that can do something better than Facebook, itself! Well played, Zuckerberg, well played.

    • jookyone

      You have got to be shitting me with
      Apple + profit = philanthropy

      Totally off topic, but Jobs killed all charitable donations and never reinstated them. He never agreed to give anything back per the Warren Buffett billionaire pledge, and has done nowhere near the philanthropy of Bill and Melinda Gates.

      GTFO!

  4. And Instagram is solving what problem? I didn’t realize there was this huge problem of scanning random photos or sharing photos. There is a word for services that don’t solve any problem: Fad

  5. What people are missing in the equation is that a whole group of younger people were suddenly shifting their time to Instagram. They started using Instagram as their way of communicating. Its an app with a moderate amount of value but when your friends suddenly hop on it, it starts having much more value (Sound familiar to Facebook 5 years ago). No amount of logic can persuade you that a photo sharing app, of which there are dozens, that has no revenue and no logical future revenue stream is worth $1 billion. Unless of course your worth $100 billion, people are now viewing you as “lame” , and are defecting. So who’s going to fork over $10 billion for Pinterest because they actually have revenue potential, are growing faster, compete on both web and phone, and have metrics that are far more impressive than Instagram with a customer group that actually controls household purse strings.

  6. Great analysis there OM. Really nice move by Mark n as for team Instagram, nothing lost cos if they ve got such ideas to put up something as wonderful as dt. They sure can do better! Let’s all remember this is business!!! A whole lot of crazy cash o.

  7. Eliza Devere

    Please. Instagram is phototwitter, and Facebook didn’t go down with twitter. It has way more users, it just doesn’t have the proprietary filters. there’s no way Instagram would take down FB. Did twitter take down Facebook? Instragram is a small portion of Facebook’s ultimate objective which was shown with their timeline feature – to take over your life. Whether it’s through “stories” or “photosharing” or posting stuff you like when you liked it. It’s a time capsule that captures you in that period of time. Photos is a small percent of that.

  8. Joe Ward

    They acquired their own users. How many Instagram users do not have a Facebook account? Did they pay a billion to (a) not look like copycats, and (b) keep the king of photo apps out of competitors’ hands?

  9. Damien Pochon

    I am having a hard time understanding how a photo sharing community with “artistic” pretention can compete seriously with the kind of photo everybody shares on FB?

    I am a modest but fatithful Instagram user and I totally separate the two experiences (and target audiences).

    This sounds like panic to me: “FB can’t grow anymore in developed countries, let’s buy niche apps one by one and kill them off”.

  10. I still don’t get Pinterest or Instagram. We’re creating thin-air business that don’t do anything but entertain us. When is someone actually going to make a USEFUL product? USA makes nothing!

  11. Raul Mihali

    First, congrats and sure thing hard work was put into this app. But $1B is obvious circumstantial luck, whether the founders do think or not that they’ve always chased that (most of us entrepreneurs think that anyway). Some good thoughts captured in this article http://goo.gl/H6U6F

  12. Prasant Naidu

    Facebook wants to be the internet and we all know Fb is all about photos but seriously was way behind in mobile section. instagram had both the things and what better for FB than just grab it up.
    A offer that Instagram couldn’t have refused ;)

  13. Nina Kvasnyak

    Instagram is a platform to share your images, and if you want to visualize your career achievements there or at Pinterest you can use this new recruiting visual service ResumUP.com and create your infographic resume in one image and share it at Facebook.

  14. “Because Facebook is essentially about photos” – really? I’m not seeing that. Yes, lots of people share photos in Facebook. But I see much more status updates, likes, and comments than photos going on in Facebook.

    Definitely a smart move by Facebook … but also definitely NOT direct competition either.