Monday, April 23, 2012

Why Facebook bought Instagram

Facebook and Instagram
Facebook’s acquisition of Instagram has come as a big surprise  and the thought that echoed everywhere was ‘Why did it buy Instagram??’, an application which would just cater to sharing photos, using multiple filters, through mobile. With multiple theories going around the blogosphere, the most notable was why would Zuckerburg spend $1 billion on this app just before the IPO.

Here are my thoughts on why Zuckerburg's Facebook picked up Instagram:

1. Kill Competition

It had been rumored that Twitter or Google had expressed interest in buying Instagram & were gathering resources for it. Facebook probably wanted to nip the competition in the bud and snapped it before any of them. The speed at Zuckerburg made the decision, having the negotiations done in a week, lends credibility to the story.

2. Valuation

Instagram, a baby of Kevin Systrom, was until now available on iOS devices & most recently Android to enhace photos, with its multiple filters saw its valuation increasing from about $100 million a year ago to $500 million recently. Similarly, its Android launch saw its user base increasing with almost 5 million downloads in 6 days. So it made sense for Facebook to pick up an commercially successful app just before its IPO & make itself a lucrative investment.

3. Engagement

Facebook had its own challenges in coming up with a mobile based app especially when most of its users like to share photos & messages. Having a mobile based app would have certainly helped them. Compared it to Instagram, it has been the most successful mobile based app to share photos where numerous users engaged over their photos. Facebook could leverage on the multiple filter abilities that Instragram provides & take user experience to a different level. A definite plus for them.

My opinion is that the buying of Instagram should accelerate the growth and engagement on Facebook, which can translate into more ads generating inorganic revenues for Facebook. Either way, it might be hard to justify the $1 billion investment, but it has indeed helped Facebook stump its competitor and by the time they wake up to develop their own capabilities, Facebook might have taken a huge market share.

Do you justify the $1 million payout irrespective of knowing that Facebook had deep pockets?? Share your thought using the comments section below.

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