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Facebook buys Instagram for $1bn – the reaction

Posted by Danny Whatmough on 9th April 2012

Facebook has just announced that it is to acquire Instagram. In a deal apparently worth $1bn, the move for the photo sharing network, which has 27m users, seems sudden and overpriced, even if you believe the rumours that there was a big, last minute fight with Google for the prize.

What does this all mean? Where’s the value? Users? Patents? Expertise? Or does Facebook just see this as a way to halt a fast-moving would-be competitor?

Wannabe analysts crawl out of the woodwork at times like this and we will probably never know Facebook’s exact reasoning, but here are some of the most interesting pieces of commentary we’ve picked up so far (and we will continue to update this post):

It’s about total user-engagement acceleration and iOS power – Alex Wilhelm – NextWeb

“Facebook has to keep growing. It has to get to one billion active users in a hurry, as its public offering looms, and investors are going to demand growth. And it can’t have a pesky gnat like Instagram take any of its user momentum, user-engagement momentum, or content (photos) potential from its platform. Facebook has to be totalizing, essentially, to command the valuation that it wishes.”

It’s all about mobile photo sharing – Om Malik – GigaOm

“In other words, if there was any competitor that could give Zuckerberg heartburn, it was Systrom’s posse. They are growing like mad on mobile, and Facebook’s mobile platform (including its app) is mediocre at best. Why? Facebook is not a mobile-first company and they don’t think from the mobile-first perspective. Facebook’s internal ideology is that of a desktop-centric Internet company.”

It’s all about adding Instagram’s camera to the Facebook experience – John Mitchell – RWW

“A billion dollars sounds like a lot for an app that generates $0. But Facebook is about to go public, and this is a drop in the bucket compared to its potential valuation. Facebook is the de facto place for people to share photos. The Instagram integration with Timeline has been beautiful. This is a natural fit.

“Facebook is now the big screen for viewing Instagram photos.

“Focusing on the size of this deal misses the point. This acquisition is an improvement to Facebook’s already-dominant photos product, and it’s a way to tie more Facebook activity to a mobile experience that, unlike Facebook’s own apps, does not suck at all.”

It’s all about mobile – Tim Carmody – Wired

“Mobile is Facebook’s future, and its frontier. The company has colonized mobile, but hasn’t developed it. (And yes, I’m aware of the dubious morality of the colonization metaphor. Here, I think it’s apt.)

“If you’re (rightly) wondering how Facebook will continue to grow after it has already amalgamated nearly a billion users, the answer is through mobile — both by adding mobile users and by more aggressively generating mobile revenue from the users it already has.”

It’s all about monetisation on mobile – Robert Scoble

“Today Facebook has NO revenues from mobile. None. That’s amazing, since so many people, hundreds of millions of us, use Facebook on mobile clients.

“That will change very quickly after the IPO. Instagram will play a huge role here, plus Facebook gets a very talented mobile development team that has built world-leading mobile apps on iOS and Android (which got a million users in its first day).

Let’s say that Facebook can turn on monetization on mobile clients. That could mean $500 million in revenue on first quarter, $700 on second, $900–$1 billion on third. Looking at it this way paying a billion for Instagram makes a LOT of sense.”

It’s all about Photos – Kara Swisher – All Things D

“Now — instead of all those billions of juicy digital photos snapped by an ever-growing legion of smartphone users loading up to the beautifully designed Instagram mobile app and living on the servers of the small San Francisco-based start-up — Facebook has now captured all these memories for its massive social networking site.

“And while $1 billion seems an awful lot to pay for that privilege — Twitter is quaking with “OMG!” and “Wow!” and “WTF!” tweets about the acquisition — this is apparently priceless for Facebook in a deal that went down quickly and quietly in recent weeks.

“That and the fact that the huge sum prevented Instagram from being scooped up by Google.”

It’s all about the competition – John Gapper – FT (paywall)

“The notable thing about the Facebook-Instagram deal is that the change in path has occurred so soon. It usually takes a year or two as a public company and pressure from growth-hungry investors for an internet company to start defensively buying nascent competitors.

“It must then choose whether to wrap the new acquisition into other operations, and risk ruining its new property, or to keep it separate. The latter causes sprawl, with companies owning overlapping services, as Yahoo did with its former Photos, which duplicated Flickr, the photo-sharing company it bought in 2005.”

Danny Whatmough