Instagram is a free
photo-sharing program first launched in October 2010. It allows users to take a photo, apply digital filters, and then share it on a variety of social networking services - including Instagram's own. A distinctive feature confines photos to a square shape, similar to Kodak Instamatic and Polaroid images, in contrast to the 4:3 aspect ratio typically used by mobile device cameras.
By December 2010, Instagram had one
million registered users. In June 2011, Instagram announced it had five million users; it crossed 10 million in September. In April 2012, it was announced that over 30 million accounts were set up on Instagram; over 100 million photos had been uploaded to its service as of July 2011. This total reached 150
million in August 2011.
Instagram's new Android version in Google Play crossed more than one million downloads within 12 hours. Instagram has
recently made headlines with its efforts to keep the ‘Insta-universe’ as positive space and has prohibited any hashtags or photos that promote self-harm. Instagram was initially supported on iPhone, iPad, and iPod Touch; in April 2012, the company added support for phones running Android 2.2 (Froyo) or higher. At present, it is distributed via the iTunes App Store and Google Play.
Facebook and Instagram are two distinct companies with two distinct personalities. Facebook is not a mobile-first company and they don’t think from the mobile-first perspective. Their internal ideology seems to reflect that of a desktop-centric Internet company. Instagram is the exact opposite. It has created a platform built on emotion - a social platform of shared experiences. They are growing fast in the mobile space, while Facebook’s mobile platform (including its app) is mediocre at best.
It was predicted at the time of the acquisition that Facebook’s IPO would boost the value of the company up to about $100,000,000,000 (one hundred billion dollars), so, considering Facebook acquired Instagram for $1,000,000,000 (one billion), the purchase amounted to only 1% of Facebook’s overall expected conservative value. This percentage was so minute that the deal could be carried out without a great deal of intervention by the Board.
“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,” Facebook CEO Mark Zuckerberg said on his blog.
Facebook knows that there is a lot of value locked up in the mobile software revolution - a revolution characterised by the growth of people sharing their lives with friends and family on the go. Instagram stands at the start of this revolution; an acquisition should help unlock some of the value from this mobile sharing revolution for years to come. Facebook not only feared that Instagram would prove a worthy competitor; they also had concerns over the possibility of a rival such as Google or Twitter acquiring the service before they did. In fact, Twitter had expressed interest in doing just that several months prior to this acquisition.
Through this acquisition, Facebook wanted to focus on its core value proposition – community and the social interaction around unique experiences. More importantly, Instagram cracked the code where Facebook itself failed: viral growth on mobile. Facebook is essentially about photos, and Instagram had found and attacked Facebook’s Achilles Heel — mobile photo sharing.
Facebook’s appeal has waned with age, but Instagram is still fairly young. Perhaps Facebook believes it has not only purchased Instagram, but also bought into the fresh brand identity that surrounds it. Instagram users will upload pictures related to their interests. With this data, Facebook can tailor ads to suit people’s hobbies; with this takeover they’ve acquired some invaluable information. Facebook isn’t just acquiring a service. It’s acquiring the user base, which consists of content creators. Content creators are an invaluable resource for Facebook, because without them, the service would be an empty shell.
Facebook has also partnered with
Mozilla, Adobe, Netflix, Zynga, and many other companies to throw more weight behind the mobile web as opposed to just the development of mobile apps. With Instagram, Facebook now has another app to spread to more people via the popularisation of the
Facebook bought the service for $1 billion in a mixture of cash and stock: $300 million in cash, and about 23 million shares of common stock, as well as a $200 million termination fee for Instagram if the US government blocks the deal or if either party terminates the agreement before 20 December 2012. It is assumed, then, that Facebook’ stock will reside at around $31 per share.
Market Reaction and Analysis
Facebook’s willingness to shell out $1 billion in cash and stock to buy Instagram has elicited an avalanche of reaction both from those in the Instagram community and from business commentators and analysts. With 13 employees at Instagram, that makes Facebook’s acquisition come to almost $77 million per person. That too, for a startup that doesn’t have a source of revenue – at least not one that has been publicly disclosed.
Some observers have argued that the
dollar value of the deal seems almost unbelievably high — especially for a startup with no revenues and only a dozen employees. Is the acquisition another sign of an emerging tech bubble, or just a smart move by Facebook to lock up a potential competitor?
The Guardian’s Dan Gillmor says no. “It’s tempting, today, to believe that Facebook’s buyout of Instagram signals the eventual end of the current technology bubble. (As in the last one, of course, all kinds of brilliant people are insisting that no such thing exists at the moment; I’ll be happy to be proved wrong.) But circumstances also suggest that today’s bubble, assuming we’re in one, has room to expand,” he writes.
Jay Yarow writes in Business Insider: ”
Facebook, with 800 million users, was freaked out by a tiny startup. It’s always good to be paranoid, but when a giant company, one that’s valued at $100 billion, is suddenly scrambling to protect its core business, it has to be worrisome.” Among ZDNet’s summary of analysts’ reactions, consensus seems to be that it was a necessary move by Facebook. “Facebook is at the top of the heap of the social web,” Gartner analyst Ray Valdes said in the story.
“There are others that want to unseat them, but no one else has all the pieces. Instagram would have been a weapon in someone else’s arsenal.”