Regarding Instagram’s successful sale to Facebook (see here): what do you think are some of the important reasons that led to (a) Facebook buying it and (b) Instagram getting valued at an astonishing $1 billion?
Zuckerberg stated in the press release that “we’ll be able to work even more closely with the Instagram team to […] offer the best experiences for sharing beautiful mobile photos with people based on your interests”. At first glance, it would seem incredulous that a “fun & quirky” app would warrant such a huge price tag. However, there must be more to this story. Let’s dig deeper.
Here are some points that come to mind:
– Facebook seeing that it has no killer app for the mobile OS ecosystem: since mobile platforms will be the dominant web platforms in the future, FB must be placing great importance and value to establishing a solid foothold in the hearts, minds and pockets of millions of consumers, in a way that it doesn’t see itself being able to do solely through its Facebook app.
– In addition, Facebook would get access to a huge established user base from which to launch additional mobile products and initiatives. Keep in mind that many of these mobile users will be accustomed and willing to make payments in their apps (as compared to most online Facebook users, who do not spend a cent in it), so it might be seeing their long-term monetary potential as users of multiple Facebook-owned apps.
– Facebook seeing the value of user data generated in Instagram – information about image locations, check-ins and friends from the profiles of Instagram’s users – that would be valuable for Facebook to exploit for its targeted advertising and data mining efforts. In fact, there is already a web article telling users how to protect themselves from having their Instagram data harvested by Facebook.
– Instagram might have been seen as a good competitor to Path, the leading mobile social platform that Facebook must be worried about. Hence, FB may have bought Instagram to defend its mindshare in the mobile OS ecosystem against this potential looming threat.
– Facebook feeling that Instagram would be able to keep up its rapid user growth: it reached 30 million iOS users in 18 months, and its Android app garnered 1 million downloads in a day.
– Facebook finally realizing that much of its core appeal to its users lies in the fact that it is basically the world’s premier web photo sharing platform, and wanting to take that to its logical conclusion: seeking to also become the world’s number one mobile photo sharing platform.
– (may seem far-out, but might have some bearing in truth) Facebook, in its patent war against the rapidly crumbling Yahoo, might have decided that it needs to own a leading social photo platform to take on and overtake Flickr, Yahoo’s own acquired photo platform.
What does the timing of the deal (just after Instagram’s successful Android launch, and just before Facebook’s IPO) tell us? Could Facebook be desperate to provide potential investors and fund operators with the picture of a stronger and more profitable company by acquiring a leading player in the mobile-social ecosystem, in order to justify its own high valuation (which is also inflated, in many investors’ views)?
In addition, given the mixture of stock and cash that Facebook is paying for the deal with, it could be possible that Facebook’s top management is well aware of its own potentially inflated valuation, and is seeking to use its current $75-$100 billion valuation as a cheaper way to pay in the long run using stock that they know will probably devalue, than merely using cash (possible, though questionable).
So, what do you think? I’d like to get your thoughts and feedback on this.