There’s no way you missed this week’s tech news: Facebook spent $1 billion to acquire Instagram, the mobile photo-sharing application sensation. This may be a factually accurate description, but it misses the heart of the story. What happened was, Facebook spent $1 billion to acquire a piece of itself.
Photo sharing has always been a core part of Facebook. The site was conceived as a way to rank the attractiveness of founder Mark Zuckerberg’s fellow Harvard students. By May 2007, when few marketers were paying attention to Facebook, users had uploaded 1.7 billion photos to the site. Facebook reportedly notched its 100 billionth photo sometime last summer. Last August, when Flickr notched its 6 billionth photo uploaded, reports showed Facebook users uploading 6 billion photos every two months.
There shouldn’t be any question why Facebook acquired Instagram, or why it paid so handsomely for it. Sure, Instagram’s acquisition price was more than twice what was paid for a dozen other photo-sharing startups combined over the past fifteen years. Instagram isn’t just any photo-sharing site, though. It attracted 30 million users for its iOS apps alone, before a successful Android launch just days ago.
Beyond any numbers and superlatives, what Facebook’s executives must have realized is that Instagram should never have existed. This should have been Facebook’s photo application all along. Facebook has more than 400 million mobile users, and any of them using a smartphone has to grapple with subpar photo sharing. Once Instagram fully integrated with Facebook, it became even more obvious that Facebook was far behind. As Business Insider put it, “Without photos, Facebook is toast.”
Instagram isn’t just a major source of photo sharing; it’s also a major contributor of public location-based data. Last fall, when I checked LocalResponse to research location-based services for a major quick service restaurant, Instagram trailed Twitter and rivaled Foursquare to join the top three sources. This also fits in well with Facebook’s approach, where checking into locations isn’t that important, but adding location information to status updates and content is increasingly common. Facebook even constantly recommends that users add locations to their photo albums.
By acquiring Instagram, Facebook tacitly acknowledged that it had lost its focus on what Facebook has always been about. Instagram is an app that never should have existed in the first place. One wonders what would have happened to Instagram if Facebook took its engineering resources used in creating the timeline and applied it to creating the best mobile social media experience. At least now, Facebook doesn’t need to worry about Instagram as a competitor, and the deal ensures that no one else can lay their hands on the startup. Google and Apple could both have been interesting suitors.
This acquisition once again reminds marketers how visual consumers are. Pinterest, Tumblr, and Instagram aren’t flukes; people enjoy expressing themselves via images. But Instagram has also followed Twitter’s lead in using simple hashtags to categorize images. This is crucial for organizing information right now; it’s still difficult to retrieve and search for images unless there are adequate tags and descriptions. What’s old is new again; plus ça change, plus c'est la même chose. Just about any marketer that has experimented with an Instagram campaign has relied on using a consistent hashtag for identifying relevant images.
More importantly, this should be a wake-up call for all business executives. What other companies out there are embodying and executing on what you do even better than you are? What part of your corporate DNA has been stagnating at your headquarters, and where outside of your office is that DNA mutating for the better? What do you have to do to stay true to your identity, whether through in-house development or acquisition? Mark Zuckerberg found his answer for Facebook, and proudly paid $1 billion for it. Will it take that much for you to do the same?
David, great post, and right on point as usual. Many have been writing about the same thing. What I love about your posts is that you manage to add something most of us miss about such things. Your final paragraph, for me, has all the value. Thanks again for never letting me down by always providing such valuable insights.
May be the best headline.....ever
Great piece, David.
The biggest point for me is the location-based data side of things. Yes, the picture sharing component of Instagram is huge - but anything that gets people used to clicking on an app that assigns location data + any form of demographic or other data is the future.
Thanks for taking the "product management" point of view:
"By acquiring Instagram, Facebook tacitly acknowledged that it had lost its focus on what Facebook has always been about."
If Facebook incorporated product management discipline into its corporate DNA, it would NOT have lost focus on the market, on the competitive space, on its users' behaviors outside of the platform...
"One wonders what would have happened to Instagram if Facebook took its engineering resources used in creating the timeline and applied it to creating the best mobile social media experience."
Perhaps instead of hiring engineers/developers right out of college who focus on building technology, Facebook should train them in product management fundamentals (customer development/business case/competitive analysis) and instead hire product professionals with a bigger view and a set of tools (such as ethnography & product management domain knowledge) that enable them to guide the technology using market feedback and incorporating customer behavior on other platforms...
NIce job, Berky. There's an axiom in the Valley that the next great company/billion-dollar idea sits just beneath the contempt of (name your incumbent). So, even if FB saw them coming, it wasn't able to appreciate the magnitude that Instagram's focus on mobile would provide for the platform in consumers' relationship with it. Same is true for marketers & agency-types--the next big area where we need to be delivering value sits just beneath most c-Suites along with the most senior Creative, Strategy & Account folks.
Read a great analysis of why this acquisition was a steal - and why the valuation makes perfect sense in an information economy at Forbes mag http://onforb.es/J89v4S