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Why did Facebook really acquire Instagram?

Yesterday Facebook released a new app called Camera and, just like that, the fog lifted. The reason Zuck and his crew shelled out $1 billion (insert Dr Evil joke here) for Instagram suddenly became a little more clear.

An application that allows you to add filters and effects to photos on your iPhone or iPad before batch uploading them to Facebook, one presumes that FB will quickly roll out the ability to share to other social networks with a nice ‘shared via Facebook’ stamp at the bottom.

Of course, there are a few reasons why companies acquire other companies. I set out to think about whether any of these reasons were relevant to the hefty cheque Facebook recently made out to Instagram.

1. Talent Acquisition

Sometimes a company buys another one, knowing that it will shut it down, but plans to keep all of the super-talented staff to work for them. Recent examples of this include Gowalla and Lightbox, who were both acqui-hired by Facebook. There’s no doubt that this can be a great move, but a price tag of $1bn for 11 people (in the case of Instagram) isn’t exactly a cheap way to do business.

2. Tech Acquisition

Often companies buy other smaller companies for the products they have produced. These smaller companies tend not to have many customers because they can’t afford to do much marketing, so are spotted and snapped up before they get much traction. Of course, this wasn’t the case with Instagram, who had lots of traction (35 million users).

The supposition that Facebook bought Instagram because they couldn’t build its features themselves is also completely untrue. In an interview with Business Insider (http://articles.businessinsider.com/2011-11-28/tech/30449353_1_android-instagram-app), Instagram CEO Kevin Systrom said the following – “If you go to my Flickr page, you’ll see a photo that looks like an Instagram photo from about 2007. I’ve always been into taking my photos, cropping them square, putting them through a filter in Photoshop. We just reverse engineered how to do filters, now we opened it up to the masses.”

Facebook have proven that they have deep pockets – it wouldn’t have been difficult for them to hire a few Photoshop junkies to reverse engineer some filters for them. However, consider each of these headlines – ‘Facebook releases Instagram clone’ or ‘Facebook integrates technology from recent purchase Instagram into new Camera app’. Clearly, the second is far more desirable.

3. Customer acquisition

Bearing more resemblance to traditional mergers, companies sometimes buy other companies so they can get their hands on all their users. There are a lot of different reasons why a CEO might want to do this, but it often comes down to eyeballs. When Facebook acquired Instagram and Newscorp acquired Myspace stories about the buyouts were splashed all over the covers of…well, everything. Taking something that already has a fanatical userbase, as both of the above services did, truly mainstream (even my grandma knows what Instagram is now…) is worth spending money on.

4. Competition Acquisition

Sometimes the owner of a company feels (whether or not it’s actually the case is another matter) that it has to acquire a competitor to protect the company. While photos is a huge part of Facebook’s offering (2.7 million uploaded every 20 minutes), Instagram was a real threat – before the acquisition they were seeing 5 million photos uploaded every day. Certainly, there’s a big gap between those numbers, but there’s an equally big gap between the ‘value’ of those photos – while a lot of Facebook users simply upload hundreds of holiday photos out of habit, photos on Instagram tend to have an aspirational quality to them; many represent a distinct memory that people are excited to preserve. The same can’t be said of many social networks – Pinterest and Tumblr both have an aspirational quality but rely heavily on recycled content, and Twitter (in very general terms) tends to be more about words than pictures.

Did Facebook just get scared and write a big cheque to take out a competitor? Maybe, but if Zuck is astute as his track record (up until the botched IPO anyway…) suggests, there’s much more to it than that. Regardless, there’s a lesson to be learnt from the takeover – you don’t need to build a Facebook killer to become a multi-millionaire; you just need to build something that’s starting to look like one…even if only through a tilt shifted sepia filter.

Patrick Johnson Patrick Johnson

Patrick writes posts about design (it’s still one of his great loves), user acquisition and significant goings-on in the world of business.

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  • http://www.twitter.com/jmedwards Jamie Edwards

    I think while all of that is true, the price tag was driven largely by 4. Or more precisely, to stop another competitor capitalising on Instagram. It’s everything to do with mobile and in my opinion it wasn’t so much the Instagram network they wanted or were worried about, but rather what could be done with it.

    Facebook knows it sucks at mobile photo sharing (and mobile in general), and as you say, photo sharing is one of Facebook’s biggest competencies. But they are completely lacking in the way in which most people will share most photos in the future – mobile.

    If Twitter bought Instagram, it wouldn’t have taken much more to make it the most popular mobile photo sharing ‘network’… and quite an entrenched one, too: so many millions use an Instagram app that can post to Twitter and Facebook, why delete it and switch to a Facebook-only one?

    Nail on head re ‘value’ of those photos and the depth of user engagement in the network, too.

    • Patrick Johnson – Head of Design

      Thanks Jamie. I think to warrant the valuation a combination of all 4 is needed. But that aside it was an ok move on Facebook’s part. It only takes another social network (as you say) to acquire and expand their feature set to become a real competitor for Facebook.

  • http://notsolonelylondoners.wordpress.com Stu

    Until FB integrates Camera with other social networks it’s not going to ‘replace’ (if that’s even their aim…) Instagram. The batch upload feature is nice, but my question is still how they’re hoping to monetise a bunch of pretty filters that people use to take pictures of coffee cups and sunsets…

    • Patrick Johnson – Head of Design

      I think, currently anyway, it’s all about interaction. At F8 each year all they go on about is the number of minutes each user spends using their services. The more time they take of any individual users time the more captive an audience they have. Monetising will be hard but is made easier by having more and more data on Facebook. Having photos in-house is key to this. Or rather stopping photos being stored outside of Facebook is not desirable to them.

  • http://gplus.to/GR3GD Greg Dreyfus

    Here’s my thoughts on the acquisition of Instagram by Facebook.

    Like point 2, the acquisition shows that Facebook have deep pockets which has given them great online presence & this would have certainly help their IPO filing & share prices.

    Instagram has nothing exclusive to it that other apps don’t show already except for a large community of users. Ironically these users are probably on Facebook already too.

    So the recent launch of the Facebook Camera app, which was most probably in developement way before the Instagram buy out, is a competitor to Instagram’s app.

    Now Facebook agreed to acquire Instagram in April for $1 billion but the acquisition is not yet finalised and still could fall through.

    Is this Facebook’s backup plan? Was the acquisition of Instagram a marketing ploy?

    • Patrick Johnson – Head of Design

      Oooo, Conspiracy theory. I like it.

      Even if it wasn’t Facebook’s backup plan and their plan all along was to ‘hump’em and dump’em’. Use it so there was no ‘bad blood’ then pull out later if people start switching over. This will still piss a lot of people off but not the majority of who matters; Facebook’s users.

  • http://Www.capricaonline.co.uk TimCaprica

    I agree with it mostly being driven by 4 but it was wider than just the competitive threat of Instagram.

    They’re not strong enough on images generally. So when they see everyone getting really excited about Pinterest like everyone briefly did 6 months ago they feel vulnerable.

    The best thing they have going for them at the moment is that everyone in the world is on Facebook. They don’t want everyone in the world signing up for something else that is all about sharing because of an inadequacy. Then people might start sharing something else on it too.

  • http://www.computer-recycling-and-removals.co.uk Steve Morgan

    It’s yet another money making machine for Facebook. You have to admire them really :)

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