The technology world was taken aback last week when Facebook agreed to purchase Instagram for one billion dollars. The valuation seemed to be a bit random and perhaps without merit. In this deal, Facebook made the offer with 30% cash and 70% stock, which assumes an IPO of $30 per share when the company goes public. Instagram is taking a bit of a gamble, but one that worked out well for the folks at Zappos in 2009. According to the New York Times, Amazon acquired Zappos in exchange for 10 million shares and some cash. The market value of those 10 million shares today is $1.9 Billion.
Instagram, a photo-sharing startup, had about 30 million users at the time the purchase was
announced. Within a week they had an addition 10 million users, due to the overwhelming publicity. Even so, Facebook probably didn’t make the purchase because they wanted to court 30 million additional Facebook users to add to their current 800+ million members. It’s likely that the vast majority of Instagram users were already Facebook members anyway. I think the more likely explanation for Mark Zuckerberg’s move was to keep it away from the emerging social network, Google Plus.
In an interview, Zuckerberg explained that Instagram had developed a really great mobile experience for sharing beautiful photographs, and that he wanted to bring that to Facebook. What he surly must realize is that he could have easily developed that functionality on his own mobile platform.
The ability to add cool filters and effects to photos is nothing new or proprietary, so I am not sure I totally buy that claim, but it really doesn’t matter. What really matters is that two large social-sharing sites, Facebook and Google Plus are competing for your attention (and user data). They each want to own their user’s life, in the sense that they know where you shop and hang out (geo-tagging), who your friends are and what you “like”.
I don’t know who originally said it, but it’s absolutely brilliant, true and creepy all at the same time; “if you’re not paying for it, you’re the product.” The Instagram app is free.
