WHY FACEBOOK SHELLED OUT FOR INSTAGRAM

jessica litwin

I recently got back from a trip to Morocco where I spent the majority of my time trekking in the Atlas Mountains. I was accompanied by a local Berber guide who was young and hip, and took great pleasure in taking photos as we hit various peaks throughout the four day trek.

He used his iPhone’s Instagram app to capture tinted and colour-filtered photos of us with snow-capped mountains in the background, and later sent them to us via sms and email.

Such anecdotes go a long way to explaining why Mark Zuckerberg decided to shell out $1billion USD in stock and cash to buy Instagram earlier this week. Currently, with 30 million users, Instagram users are valued at $28 per head.

The question is, was it worth it?

One argument is that this purchase is a necessary step to leverage the photo sharing capabilities of Facebook into the mobile world. As a first time user of Facebook in 2004, sitting at my desktop screen in my university halls, I could never have envisioned photo sharing on a touch screen phone. That is Facebook’s current weakness. In order to expand the extensive photo sharing functions of Facebook and move away from the static nature of the desktop platform, Facebook needs to entrench its brand on mobile platforms through popular apps. Enter Instagram.

The second argument is that Facebook is likely beyond its peak in terms of user numbers. Even if it developed an app to compete with Instagram, its launch on iPhone and Android would not have exponentially grown Facebook’s user-base. By purchasing Instagram it has bought a pre-existing network of users.  Thirty million registered Instagram users to sell to advertisers means a greater ability for Facebook to monetise its mobile presence.

The third argument goes back to basics. When Facebook first launched within the American university community, it was cool. Now lagging behind trendy mobile social networking apps, Facebook is in a fight to meet the ‘cool’ threshold. If indeed Facebook manages Instagram as an independent brand with its own identity, able to network with other social media third party groups apart from Facebook, it may revitalise its coolness among users. However, if Facebook chooses to smother Instagram much like Twitter did to Summify when it purchased the start-up, Facebook’s increasingly corporate-style identity may cut away at its own user base more than Instragram may have been able to do as a competitor.

Regardless of how the world of social media mergers and acquisitions evolves, what is clear is that major players with a large market share are willing and able to seek out talent and fresh ideas well beyond the start-up price.

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