Why Facebook will get bang for their billion
Despite the scoffs and open-mouthed reactions at Facebook’s $1 billion acquisition of Instagram, we’ve been able to come up with a couple of good reasons why the high-priced purchase makes sense.
The rise of Instagram has been nothing short of meteoric.
Initial capital raising efforts a year ago valued the company at $100 million. A few months ago they jumped to $300 million, then – off the back of its Android app release – it rocketed to $500 million when they added 1 million users in a day.
They now have a new owner, Facebook, who have laid out a cool $1 billion to acquire the company.
All this off the back of just $7.5 million in capital investment, nine employees and seemingly no revenue model (or at least none that has been made public).
So why did Facebook pay $1 billion in for the fledgling mobile photo sharing platform? Here’s a few reasons:
1. Instagram is clearly the best and most popular photosharing app in the market and is starting to generate serious numbers. The launch of the Android app proved that. With popularity surging and the lack of a comparable service within Facebook, the acquisition makes sense and not only brings in a small army of users and cool functionality, but presents an obvious opportunity for Facebook to integrate Instagram into its platform and thus proliferate the user base and popularity of both platforms. Photo sharing on Facebook is the number one most appreciated feature of the platform, so by adding in Instagram, this aspect of Facebook will improve markedly.
2. Instagram is inherently a mobile product. It was conceived in a mobile environment and has proven its viral capacity within that space. Its user controls and experience at all times considers mobile users. With Facebook being primarily an online platform, that acquisition will greatly assist Facebook’s push into the mobile space with a product that has plenty of cred, usability and user love.
3. Twitter – if ever Facebook feared Twitter as a competitor, it will be comfortable in the fact it now owns a product that is wrapped inside the fabric of Twitter. Instagram users can broadcast their pics via Twitter and Facebook, but the proliferation of Twitter on mobile meant the two services were nicely matched. The oxygen that will be injected into Instagram via the Facebook acquisition will ensure we see more of Instagram on Twitter, stealing the thunder of Twitter’s native photo-sharing service. The acquisition will ensure we see more of Facebook’s ‘products’ in the Twitterverse.
4. Recent rumours of a capital raising exercise involving Sequoia Capital valued Instragram at $500 million, which was probably a more realistic valuation. This was based on 35 million users, most of them using the service on iPhone. Now it’s available via Android and will soon be integrated into the profiles of Facebook’s 850 million users. So how is that $1 billion price tag looking now?
Hadn’t heard of Instagram? Bet you have now.