One of my students recently asked me what I thought of Facebook’s acquisition of Instagram. Frankly, after reading the headlines, I thought it was overpriced and made me worry about the impending technology investment bubble. Instagram is only worth $1 Billion in cash to a company that first, has the money to spend, and second, is trying to retain market leadership by buying into products and platforms that solidify their position. Instagram, regardless of what you think of the price, is the preeminent, if you can say that about a fledgling market, player in the “story as a stream of photos” market. That market is very social, Facebook is the social hub. It makes sense. For how long it makes sense is a variable that only the arrow of time will unveil.
Facebook, as you can tell from the number of places you can now log into using your Facebook credentials, wants to retain its place as the center of the social universe, It knows that the primary way it will be disrupted from that goal is through new interaction modes that draw new users at a pace that equal or rivals the acquisition of new customers to Facebook. Facebook seems to have faced the fact that at some point in the future, they will hit their own ceiling and loyalty will come only through additional experiences. Instagram is one of those experiences. It greatly enhances the potential for Facebook’s photo album to come under more creative user control. I would look for the filters to be embedded sooner than later into Facebook so that the need to live outside of the Facebook client, in a dedicated app, is lessened. If they keep the Instagram app, I would think it would become more integrated into the Facebook architecture, and that may happen first, but ultimately, people will want the features on the Facebook platform so they can post-process images that were collected through other clients, like real cameras, or even phones where the tweaking would take more time than the user has to accomplish (BTW, just as I was typing this, another social firm lost its independence as LinkedIn acquired SlideShare.)
With an estimated 30 million users, I think Facebook may pick up a few bits of information they didn’t have, but I don’t think this was a consumer acquisition play. My guess is, and its only a guess, that the overlap of users between Facebook and Instagram is pretty high. This is about functional synergy, not customer acquisition. (Though data about place behaviors and affiliations not directed back through Facebook will become more likely, increasing the value of the Facebook social graph with additional metadata.)
I think the real issue may be to head off Pinterest’s growth spurt. Rather than buy that company, which it could still do, Facebook is buying Instagram as their front-end to a rapid development cycle that may make Pinterest irrelevant (relevant to this, however, is today’s valuation of Facebook at about $86B in pre-IPO dollars). As a scenario planner, however, never count out the underdog if the incumbent has baggage, and recent UI changes at Facebook have turned a simple app into a social dashboard that has become increasingly intimidating to its customers. Pinterest may be the fresh set of new bits the consumer-web has been looking for, though I doubt it has the sophistication, or depth of experience, necessary to displace Facebook.
The bottom-line: relevancy play. Keep the technology ahead so that Facebook becomes the place for advertisers and brands to spend their money. They have already built IT and people have come. They need to keep IT, Facebook as a brand, relevant so people not only come, but they stick around and increase their engagement with the service.
Well written & thought out article…my big question w/all the SM M&A action in the news recently is what’s the end-game for the few industry giants beyond just leapfrog acquisitions vs. competition…first mover advantage or best practice platform features that positions one as the preferred SM niche standard to which most users flock?