Facebook and Instagram
Mindshare, April 2012
Facebook has made its biggest purchase to date, buying the increasingly popular mobile photo-sharing app Instagram for $1 billion in cash and stock. Instagram is only two years old, but has racked up around 30 million users in that time; the vast majority of them are on Apple devices as it only launched an Android version on April 3rd. However, Instagram notched up 1 million downloads in the 24 hours after it was launched. What Instagram hasn’t racked up at the time of purchase though is any sort of clear monetisation strategy, which is why many are comparing its sale to Google’s purchase of YouTube for $1.6 billion in 2006 when YouTube also had no revenues.
Though just two years old, Instagram had already received $57.5 million in funding, including $50 million, at a $500 million valuation, just before the Facebook deal was struck. Its founder had also started to talk of it as a social network, rather than just an app, highlighting the potential threat to Facebook, and undoubtedly one of the reasons Zuckerberg was willing to pay so much for it.
Unlike previous Facebook purchases (Gowalla), they are promising to keep the product alive, and as a separate brand; again, similar to the way that Google handled YouTube.
Whilst the app will remain independent, Facebook has promised to provide it with resource to keep developing and strengthening the product. In fact it’s actually pretty impressive that the very lean Instagram team (just 12 people) has been able to keep it running despite the massive demand it generated, and was probably the reason they were still looking for funding, right up to when they sold.
Much of the talk about the deal will be about whether Instagram is worth $1 billion, to which the short answer should be, it was worth it to Facebook. Their growth was, in many ways, built on photos, and their future growth will be dependent on mobile. As they strive to hit their IPO, it was obviously important to safeguard both these areas.
From a brand’s point of view, this could see Instagram become a much more interesting, and practical, platform to build into communications.
- Utilising EdgeRank to sort the often cluttered feeds on the app could bring improvements in engagement
- Allowing tagging of people and products is likely to create even bigger growth spikes
- Sharing product features, such as photo filters (Instagram) or check-ins (Facebook) could increase engagement on both platforms
- Vitrue had already added Instagram to its enterprise Facebook management tool to make it easier for brands to manage yet another communication channel: expect others to follow.
Whether or not any app is worth $1 billion is kind of a moot point: what’s clear is that a strong mobile offering, and engagement around both user-generated and branded content are key areas Facebook needed to tie down to grow, and Mark Zuckerberg was prepared to pay handsomely to do just that.
Author: Ciarán Norris