I believe Facebook looked at what part of their platform drives the most engagement by its users, and then looked at the big players in the market that are competing. If you look at the graphic in this post:
...you've got Facebook, then Flickr (which is arguably a dead man walking) as long as it's under the Yahoo! umbrella, then Instagram. If they look were to compare the growth of their own photo platform from mobile, and compare it to the growth of Instagram on mobile, it probably helped them make the case to buy out the fastest growing mobile photo sharing platform before it became a threat, or before it became too expensive.
Billions for a pre-revenue video sharing site (YouTube)? Tens of billions for a social network (Facebook)? Remember that Yahoo! turned down Google for around $3 billion back in the day (before talks broke down with Facebook for even less).
I don't know how they got to the price and so cannot argue its rationality, but having one's eyes glaze over because of the price tag alone isn't reasonable either.
The NY Times is also part of what is widely considered a sunset industry, even with its online properties. It's not implausible for companies in sunrise industries to become more valuable than the NY Times in the future, even if their revenue models are not yet clear.
Well, let's assume FB gets somewhere near a 100b valuation when they go public. Is a tool that drives engagement, and ensures your users continue engaging with your site multiple times throughout the day worth a 1% investment not only to have it for yourself, but also to keep it from competitors? In one purchase, they've not only captured one of the leading mobile photography communities, but they've also purchased a tool that is used to seed those photos through other social networks. Now you'll have more "Facebook photos" appearing on to Twitter and Google Plus as long as users continue to use Instagram.
Flickr is still the best and largest community of amateur photographers on the web. It's not shiny anymore and Yahoo is letting it stagnate, but the community is still there nonetheless.
What I don't get is that people already upload tons of shitty photos on Facebook. What Facebook misses here is quality of the uploaded content. The signal to noise ratio is awful. That's exactly what Flickr has and Instagram doesn't.
That's why I don't get this acquisition. What does Instagram have that Facebook doesn't?
My first thought was the native mobile app, which is indeed cool. But I never used it, simply because my Android phone came with built-in integration with Facebook and Google's Picassa, making sharing easy. And I also need a centralized repository of photos from multiple sources, not just from my phone, which means I need lots of storage and good management tools. And if I want to retouch my photos, I like to do that from the comfort of a laptop or a tablet, because the display of a phone is too tiny, even for playing around with stupid effects.
One thing that Instagram got right is giving you a sense of pride about your photos. You name it, you can apply a filter to make it more "yours", and the emphasis is on the single photo rather than a group of photos. Sure, there's more pictures of cappuccino art than I'm interested in on Instagram, but it's still better than albums where people upload blurry photos.
I've stuck with Flickr over the years though, and definitely agree that the community is still there. I've always liked how they report stats on my photos, and haven't found any other services that do that as nicely. I am worried about Flickr in the long term though, and am starting to think about other solutions for storing my photos.
"Facebook begins to get nervous that a social-sharing company like Instagram is able to migrate from iOS to Android so seamlessly."
Wat? Facebook isn't run by suits who have never heard of an API. I agree it was impactful that a million people download the Android client in a day, but that was fairly predictable given the iOS popularity and no clear alternative in Android land.
And it did take 18 months to move from iOS to Android! (Not that taking their time was a bad thing. I heard them at Le Web say they're focusing on good people and didn't want to hire ahead of themselves.)
Are they not still a private firm? Who is the due diligence owed to? I'm sure they've been watching this and mulling it over for quite some time and that the folks in charge approve. That's all they need to do.
The fact that they had already gone through due diligence to get the 50MM funding probably helped. In any case, this is very straightforward, as long as the metrics were real, that is basically what they cared about the most.
There was definitely a bidding war involving multiple parties. There is no other reason Facebook would buy this at this time - ie have to modify their S1 etc.
Still a smart move I think on Zucks part. Tough decision and he made the right call. Photo sharing needs its own app and facebook can start with one thats already pretty good ...
I thought I read before that Facebook tried to buy Instagram last summer but it didn't happen (my guess is that they offered $500m). I think FB might have offered too low last summer, and has been watching Instagram ever since. Instagram's growth is amazing and they have the network effect in the mobile photo market. I personally think Facebook got a great deal at $1b and that Instagram will continue to grow and reach 100+ million users within the next couple years. $1b to acquire Instagram will look cheap in a few years.
I'd be careful extrapolating growth based on a photo filter trend. The big benefit of Instagram is making mediocre camera-phone pictures look "better" by adding filters. As camera-phones improve and tastes change (which is inevitable), Instagram's value could significantly decrease. I think you're underestimating the risk in this acquisition.
I wish that sometimes companies like these didn't get acquired before they had to start making money for themselves. When everyone is scared that everyone else is going to purchase the "next big thing" first we get these crazy purchase prices. If they'd just been allowed to run up huge server/bandwidth bills, fail to monetize and shutdown it would return some sanity to the world.
I'd love to see some stats comparing instagram to say imgur. I'd be willing to bet that imgur is serving more views, and certainly making more money. Different market, but still.
It wouldnt take much money for Imgur to add an upload/camera app with a few filters though would it? They're a big part of reddit content and appear to have started accreting some of that community too.
Instagram's value-add used to be their filters and quick sharing options, but the genius of Instagram is that they used that to build a community. The Instagram community is worth $1b+ because it's got network effects and it's an inclusive community, meaning that entire networks of friends join Instagram and love it. It's different, in my opinion, than Digg or Flickr because those networks were more narrow-focused and appealed to only the serious passionate users. Instagram is taking young people by storm and reminds me more of FB or Twitter.
Alternative hypothesis: they knew of the impending valuation, and were waiting for a valuation, so they could easily make a convincing offer without overshooting and wasting money. It's possible Facebook wanted Instagram before the valuation but thought they would end up with a lower price after the valuation, if only due to the caution required in the former case. And giving any indication that they were ready to buy Instagram would have ruined the plan.
With that said, my idea is no better than the article's, and possibly worse in several aspects...
Here's what I don't understand, and I'd love to hear why I am wrong about this because I am sure I am wrong, I just haven't grok'ed /why/.
A lot of people seem to be arguing that this move may have been not to get Instagram tighter with Facebook, but rather to prevent any other platform or company from acquiring Instagram. Ergo, it's a move by Facebook to further cement their lead as 'the place you share stuff'.
Ok, if that's true, in what way does buying Instagram 'further cement their lead'? Isn't Instagram really, extremely easy to code on your own? I'm in the process of learning Rails and I feel confident I could bang out a Heroku app using S3 for storage to upload/display/process photos. Then all you need is a thin native device to grab photos from the library or from the camera directly and upload it to that app. You don't need to have any platform-specific code outside of handling the camera and photo roll on the device.
Point is - did this do anything to stop, say, Google Plus from making their own Instagram?
Another related argument is that this means that the existing user-base of Instagram will get folded in to Facebook. Personally, I would be flabbergasted to find that more than 0.1% of Instagram users don't already have Facebook accounts. And if you are not using Facebook for photos already, you're either not going to want to share them at all, or else you've already got someplace else you want to share those photos.
Basically - where is the value in this acquisition? I mean any value at all? It seems like they paid 1B to avoid having to develop a very very small app.
I've been thinking of ways to phrase this without sounding rude, but it's difficult to avoid sounding that way in the context of how you asked your question :) So please don't think I'm intentionally being rude...
Your confusion stems from the fact that you are looking at the situation though a developers eyes. The acquisition of Instagram has nothing at all to do with the code. Nothing. It's about Instagram's users, their brand, and their founders / team. Instagram has ~27 million users [1], a good brand and smart founders. Their engineers probably know a thing or two about scale too, which I'm sure facebook would find useful.
PS. IMO, most startup logic makes a lot more sense when you stop looking through developer-centric goggles. You're not making code you want to turn into a company, you're starting a company that you want to produce code...
But again - those 27 million users are almost certainly already on Facebook. If Facebook came out with 'Hipster Pics for Facebook!' (obviously I should not be in charge of naming things) then I would assume the vast majority of those users would begin using 'Hipster Pics for Facebook!' instead of Instagram.
I guess it would make some sense for G+ to buy it in the hopes of driving use of G+ with it...
Anyway, I'd even argue it's mostly just the 27M users and the brand. While smart founders and engineers knowing a thing or two about scale are much less common than <code for a photo sharing app>, it's the users and the brand that made it worth $1B to Facebook.
The web is littered with photo sharing apps, yet most of them aren't even a dot compared to Flickr, a web service which is supposed to be dying because of Facebook.
Yes you can create your own, but that's not the hard part. The hard part is having users. Google Plus is a bad example because of that.
I would say "yes". But that's pure speculation. However I wouldn't be surprised there was a bidding and that big names like Google or Apple might have been in the loop.
If it was $50M on $500M post, then it's just a bit more than 10% dilution, which isn't too bad. But either way, that $50M buys two things: (1) a floor on near-term future price negotiations, and (2) a strong signal that they were nowhere near needing to sell and instead that they could go another 18+ months growing their walled garden of eyeballs. That second point could have spurred a big company like Facebook to overpay a little now rather than having to risk squelching an upcoming competitor a year from now at a GeoCities-like price.
I'm not sure about this. If we say FB offers $600M, and Instagram is holding out for a billion, it wouldn't make sense for Instagram to go prove that it's only worth $500M (valuation), right?
"Panic" is probably too strong a word. It was the perfect timing for Fb to knock down a potential rival. And what better time than right after the funding round? Making them 100% on their invested capital in just a week.
I don't think so they just got a big pot of money through IPO now they are flexing their muscle. Google did it, apple did it, tech company of these guy size have lots of money more than they could ever use.
http://blog.1000memories.com/94-number-of-photos-ever-taken-...
...you've got Facebook, then Flickr (which is arguably a dead man walking) as long as it's under the Yahoo! umbrella, then Instagram. If they look were to compare the growth of their own photo platform from mobile, and compare it to the growth of Instagram on mobile, it probably helped them make the case to buy out the fastest growing mobile photo sharing platform before it became a threat, or before it became too expensive.