Facebook recently bought Instagram for one billion dollars. Instagram is the fast, beautiful, fun way to share photos with friends and family. Instagram enables you to snap a picture, choose a filter to transform and theoretically improve its look and feel, then post to Instagram’s website. And you can share to Facebook, Twitter, and Tumblr too – it’s photo sharing, reinvented, and super easy to do. But, still, it’s reinvented; not exactly new or groundbreaking. So, why exactly did Facebook buy Instagram and why does that matter?
Facebook doesn’t need Instagram’s 30 million users.
It already has 850 million of its own. And Facebook’s ultra-simple built-in photo app is the most popular app on Facebook. So, why? Is Facebook predicting that its user acquisition rate will slow down? Don’t think so. They’ll likely hit a billion users sometime in the next year just on autopilot. Facebooks upcoming IPO guarantees that they’ll be spending most of their time and treasure on increasing revenues, not users. Of course, most of that is ad revenue. Instagram comes with users but no revenue and no obvious way to monetize their user base.
The Facebook Instagram deal looks like it’s a pure mobile play.
But, Facebook already has lots of mobile users. Well over 400 million users per month use Facebook on their mobile devices; and Facebook offers mobile apps on just about every platform. Problem is, Facebook is getting pennies on the dollar for mobile ad revenue compared to desktop ad revenue. In light of the upcoming IPO, Wall Street analysts are surely looking at this acquisition from the PoV of “how much revenue does the acquisition bring to the table v. the expense of keeping Instagram running and of course the one billion dollar price tag?”.
OK, this might be a bit of a stretch but maybe not. Facebook doesn’t own a piece of the image acquisition part of the mobile market. Instagram does. So, maybe Facebook is thinking that instead of Instagram users posting the images to Instagrams website, that users will start posting them to Facebooks timeline. That would result in more opportunities to serve ads to the desktop and of course that would increase revenues. I for one would like to see Facebooks spreadsheets on that one though since Facebook still has to recoup their one billion dollar investment and that will not be easy.
Maybe Facebook doesn’t have much of a choice?
Facebook wants a big piece of the mobile market and their current mobile offering may take too much time to develop into a revenue-generating service. Mobile image acquisition isn’t part of Facebook’s current mobile service but maybe that’s exactly what they need right now. The Instagram purchase, complete with business infrastructure and 30 million users, would instantly accelerate Facebook’s market share of the mobile market, and interface with Facebook in a way that increases Facebooks ad revenues on the desktop. Now this could be a Facebook mobile service that makes Wall Street happy. Right?
So, maybe the new Facebook Instagram service will enable users to quickly and easily take beautiful pictures, seamlessly share them to their Facebook timeline and friends, and Facebook gets to serve more ads to the desktop where they make their money. Maybe this is starting to sound like a match made in heaven. Never underestimate the Zuck.
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