Though largely seen as a mobile play, Web watchers are seriously questioning the rationale behind Facebook’s decision to drop $1 billion on Instagram. “The price [is] stunning for an apps-maker without any significant revenue, even with soaring startup valuations in Silicon Valley,” writes Reuters.
“It’s a notable move for Facebook, which has exclusively focused on bite-size acquisitions, worth less than $100 million,” notes The New York Times’ DealBook blog.
“A few days ago [Instagram] was rumored to be valued at $500 million,” GigaOm’s Om Malik recalls. So, why pay twice the current valuation for a 2-year-old company? “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,” suggests Malik. “Why? Because Facebook is essentially about photos, and Instagram had found and attacked Facebook’s achilles heel -- mobile photo sharing.”
“To be blunt, Instagram is simply a much, much better way to share photos than Facebook's horribly broken mobile app,” declares Business Insider. No wonder why Facebook probably saw it as a threat and decided to buy it today for a mind-boggling $1 billion in cash and stock.”
Along with taking out a potential threat, meanwhile, “Facebook is fighting Google and Apple for mobile users,” Fortune reminds us. “With Instagram, it gains a core of developers that have the mobile design chops Facebook has lacked.”
“Certainly, the deal makes a certain amount of sense if Facebook is becoming an unregulated monopoly like your local electricity company,” The Guardian writes. “To the extent that Facebook is succeeding in its bid to become an alternative Web, where it controls the ecosystem rather than existing as part of the wider open Web, it can afford to spend any amount of money to buy what amounts to a feature.”
According to parislemon blogger MG Siegler: “I’m looking at it and thinking that Facebook is ingenious. They’re one of the few large companies that understands how to and when to acquire. You don’t buy at the peak. You buy on the ramp up to the peak. Instagram as it stands right now is awesome. It’s the tip of the iceberg for what they want to do.”
The big question, however, is how well Facebook can execute on the acquisition. Mostly by promising not to shut down Instagram, “Mark Zuckerberg is saying all the right things,” Siegler notes.