Behind Facebook's billion-dollar bet: Seven burning questions about Instagram
Something is always buzzing in the social media world, but this week Facebook’s $1 billion purchase of Instagram is the queen bee.
The deal between the social network giant and the quirky photo-sharing app has journalists, bloggers and the general mobile population (including 30 million Instagram users) overflowing with energetic opinions and questions about how Facebook plans to use its latest product, and what it means for the future of the little camera app that could did.
Why did Facebook purchase Instagram?
Any media savant will tell you that one of Facebook’s biggest struggles is with its mobile technology — notably on iOS — due to the massive amount of content offered and the clunky, inconvenient platform currently being employed to display it. “They realized that their mobile experience was just too cluttered,” said Nick Bilton, lead columnist for The New York Times’ tech blog. “Facebook has so many different services within the company that it takes 11 steps to take a photo and share it. With Instagram, it’s almost an instant process.”
One approach the company has started to take to rectify their mobile woes involves building out smaller apps — like the recently launched Messenger — which offer standalone doses of specific Facebook features. In the case of Instagram, and considering that photo sharing is the start-up bubble du jour — Facebook looks to have finally found a photo-sharing property that, coupled with other acquisitions, may be the missing puzzle piece of their mobile strategy. Tech pundit Om Malik’s opinion suggests far less amiability: “Facebook was scared s–tless… Facebook is essentially about photos, and Instagram had found and attacked Facebook’s Achilles’ heel — mobile photo sharing.”
NEXT: “The number to watch is really going to be Instagram’s audience”
Will the user experience for Instagram change?
“What’s really going to be important is how they choose to integrate it into the Facebook service,” said social media professor Christopher Penn, whom Forbes recently named one of the top 50 most influential people in social media and digital marketing. “Whether it gives them more access to a greater audience, and how much data these services are going to pass back and forth, a lot of that’s going to be on how Facebook chooses to manage the property.” Facebook will likely inherit a large portion of Instagram’s loyal users, totaling well over 30 million, but the social network said it was going to try to maintain the separate user experience, which currently allows Instagram users to share their photos across most major social networks.
The key question is how Facebook will eventually integrate its own users into the Instagram experience, which could take any number of plausible forms: by forcing all Instagram users to have a Facebook account, perhaps, or by tying Instagram photos into Facebook’s tagging mechanism and allowing friends to be identified externally on the app. “The number to watch is really going to be Instagram’s audience,” said Penn. “Facebook is really not dedicated to taking photos, it’s dedicated to being social with your friends. Instagram is about taking photos and then sharing them with your friends, so the experience puts photography first. If Facebook tries to change that, they have to be real careful not to undermine the core value of Instagram.”
How have other deals like this worked out?
Lest we forget, Facebook gobbling up Instagram is hardly the first instance of a start-up being a hot big-company purchase. “I think the best analogy to this is the acquisition of YouTube by Google for $1.6 billion,” said Bilton, noting that people scratched their heads at the time, but it turned out to be a fruitful investment.
Yahoo! acquired Flickr for $40 million in 2005, and it remains one of the most visited photo-sharing sites on the Web; gaming company Zynga bought out the makers of the insanely popular Pictionary-esque app “Draw Something” for $180 million in March; and Skype fell into the Microsoft family to the tune of $8.5 billion last May. How’d that one turn out? A spokesperson for Skype told EW, “Almost one year into the Skype-Microsoft merger, we’re seeing positive results. Skype is still growing and, in fact, today we hit a milestone and saw 40 million concurrent users signed into Skype all at once.”
NEXT: Right place, right time
Why was Instagram able to rise to the top?
There are dozens of other camera apps on the market, but the Polaroid-reminiscent Instagram somehow managed to stick out and become the billion-dollar jackpot winner. “The great thing about Instagram is you take a photo, you apply a filter, you share it, and you’re done,” said Mashable editor Christina Warren. “It’s a great app and a great product, and certainly a more efficient use of time than [Facebook] trying to build something else.”
Penn thinks it was just a matter of being at the right place at the right time, and predicts that we’ll see other camera apps scrambling to find their angel investors in the meantime. “It’s got maybe 12 to 18 months before people realize the valuations [of these start-ups] make absolutely no sense whatsoever,” said Penn. “So you’re going to see a lot of start-ups try and grab as much audience as possible so they can cash out before the bubble bursts. Pretty much every start-up CEO is looking at Instagram and Zynga and going, how can we get on the train before this ride comes to an end?”
Was the price worth it?
Is it odd for Facebook to justify an estimated $100 billion IPO next month if they just dropped $1 billion on a revenueless camera app? “I think they overpaid,” said a source in finance who worked on the Zynga deal. “Instagram was valued at $500 million a week ago, and now one week later they’re valued at $1 billion. Is there that much of a mark-up for a strategic versus a financial investment for a company that makes no revenue?”
Does the merger raise any new privacy concerns?
Rest easy, wary social media mavens. Facebook’s jargon-filled Terms of Service are not too different from Instagram’s, so if you’ve already made your peace with the former, you probably won’t need to be worried about the latter. “As long as they stay within the bounds that they’re currently operating in, they shouldn’t have any additional trouble,” said Penn. And besides, both include the standard stipulation that they might change at any time.
How can it go wrong?
Essentially, Facebook spent all this money to acquire not only the technology of Instagram, but its devoted users, too; the one thing Facebook could do to mess it up would be to alter the user experience to such a degree that it would end up alienating those same users. “There’s a very trusted and loyal community on Instagram, and integrating that into the Facebook platform is going to be a challenging feat,” said Bilton. “The fear is that it will become a Facebook-predominant service. I don’t think that would go over so well with the Instagram community.” Lest we end up with more folks feeling like this.
Facebook declined to comment on this article “due to the company’s quiet period prior to its IPO,” said a rep; a rep for Instagram could not be reached for comment.