Here is why Facebook bought Instagram

189 Comments

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 Comments

jacob

The FTC/SEC should absolutely block Facebook from buying one of its strongest competitors — Instagram.  Instagram is a photo based social network that now has 50,000,000 users. its one of the strongest competitors facebook has seen to date. Facebook has network effects. Without network effects Mark and Co. would have had strong competition a long time ago.  Instagram is one of the few companies that found a hole in Facebook’s armour through its early jump on mobile platforms.  It would be a shame to simply watch Facebook buy away the competition. Do the right thing FTC/SEC and block the buyout.  Make Facebook compete.

dave

frankly i dont get it.. instagram is an absolutely grabage platform that really just mocks real photographers.. its stupid.

getdowngetdirty

The real reason Instagram is so valuable, according to me, is because of tags. Right now, Facebook photos have no segmentation. The fact that Instagram users tag so heavily allows segmenting of that data, and will eventually allow very targeted advertising. Photos are just one of many important features of Facebook’s platform – not necessarily it’s Achilles heel.

Bartosz Solowiej

I remember sitting with you in early 2010, Om, and you asking me where Instagram was going… seems it was going well… so this begs the question, why spoil it on Facebook?

MckinneyRichard

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FowlerJorge

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Denise

I agree with your remark that Instagram has “soul”. I’ve just joined, as I’m an Android user, and already feel a sense of kinship with like-minded photographers (from amateur to pro) from all around the world. I’ve shown many photos to my husband, which I found to be awesome, inspiring, funny, thought-provoking, and more…but I know he doesn’t really get it. I’m in love with ig so far and am spending way too much time with it, but I came into this world with a certain set of eyes. Only another person who is similar to me would truly understand. I see beauty, perspective, light, colors…. I’m an idealist, romantic (to me, the same thing), poetic, and creative. Thank you Instagram. I hope Facebook doesn’t force changes on ig users it doesn’t want. I’m a former user of Facebook. It just wasn’t my “shtick”. Something for everyone is a great idea, to me, as I dare you to find two people on this earth who think and feel alike regarding all topics. Have a fantastic day!

casey

To the writer: you talk about yourself way to much to create an informative or helpful story. Quit being a douche

Joshua Tewell

Bull. Instagram isn’t a beautiful anything. It was trendy, and now everybody wants to use it cause their friends are. I’ve seen nothing about it that is good. I could see putting a aging/old camera filter (see:garbage filter) on maybe one photo a month, but these people who are trying to make their entire life seem like a washed out dream? Oh well, clearly I’m not the target demographic.

Kunjan Upadhyay

Reblogged this on Kunjan's Vision and commented:
And I got the answer of why the hell Facebook did such a big deal for just an App.

Mike

I hate it when an evil company buys a good one. Google did it with YouTube. Guitar Center did it with Musician’s Friend. You cant control the evil as a consumer.

danostrowski

Oh boy. Sounds like you’re a big fan, but this isn’t likely to be why Facebook acquired Instagram. 90% of Instagram users are on Facebook and I would say most of Instagram photos end up on Facebook. Instagram had no tech that was desirable and no engineering team is worth a billion dollars.

Facebook bought Instagram to keep it out of Google’s hands. If Google acquired Instagram, it’s a totally new demographic that can be eased into Google+ … the 50M or so users Instagram might have in the next 3 months or so is entirely insignificant to Facebook and has huge overlap… not so with Google+. It would have been a huge leg up for Google, and this was an (overpriced) coup for Facebook.

Krish Sailam

Has anyone taken a look at Instagram from a potential eCPM perspective? Something like instagram increases the number of impressions drastically for Facebook. From an advertiser perspective, the ad impressions are horrible quality though. They potentially can make the $1billion back on the purchase just through ads. Given the type of filters on Instagram is it safe to assume the majority of users were born in the 70s or 80s? Could this be a way of solidifying Facebook’s reach into a slightly older user’s pocket?

Joshua Tewell

90% of the people I see using Instagram are ~25 or younger. The older people remember how bad their pictures looked, and EMBRACE technology that gives a more true-to-life image, i.e. no crap filter.

Matt

I will no longer be using Instagram :( I don’t like one company have all of my information. Here I come Hipstamatic!

Aya Shapir

In your answers to “why FB bought InstaG at double the evaluation price..?” you forgot – “Facebook was scared shitless” that Google would beat them to it, and then maybe somehow possibly G+ could become actual competition…

burning platform

Maybe instagram users are mad bec poor symbian users will now have access to it. /s

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