The dot.com era may never be over. Mark Zuckerberg’s Facebook.com just spent $1,000,000,000 (that’s a billion…) on Instagram. Have you heard of Instagram? Of course you have (well, maybe not)! It’s become popular as the hipster photo-sharing program with clever lo-fi filters for your mobile phone. It’s a nifty little social network in the crowded space of social networks and using grainy retro film-like effects to take otherwise stinky mobile phone snaps and turn them into “art” (scare quotes intentional, but not sarcastic) is a darn clever idea.
30,000,000 people (that’s thirty million) use the site and they look to be pretty engaged users. They upload their pictures not only to Instagram’s website, but also to a range of other social network and blogging tools like Tumblr and Foursquare (and sometimes, even Facebook).
So, what did Facebook buy? Certainly not the clever photo filters. Not the social networking model. Not the software. All of those things are either in place or easy to replicate. The only thing I can think of is that they bought 30 million active users. Some (let’s assume many) were too hip to even use Facebook. They got the user activity, where else their logging in, and even what they’re taking pictures of. Of course, much of this information is available about the 845 other active Facebook users, and I am surprised that growing its user base is a big concern for Facebook. If their business model is advertising which, one way or another much of it is, than selling 845 or 875 million users seems hardly enough to make a case. Of course, improving the knowledge of of these users actions increases their value, but at the end of the day, advertisers only have so much of their budgets to pay to acquire new customers.
E-mail direct marketing lists are expensive, but they rarely cost $30 per lead. On the other hand, they rarely contain this much active information about the users. And maybe the money isn’t real, since much of it will be Facebook stock and that means that upcoming suckers who support the Facebook IPO will be buying a 30 million strong customer list. Remember, Instagram makes $0.
Or perhaps Facebook just bought out a competitor. Some pundits are proposing just such an argument. Silly, of course. OK, sure, Instragram is growing at an incredible pace, but just how do you get from a really nice photo-sharing site to an all encompassing social network company? And does anyone really think that growing from 0 – 30 million is, while amazing and impressive, somewhat easier than growing from 30 to 845 million? And what if Google bought them? It’d be a better match for Google, and I can imagine some legitimate concern, but now we’re back to the question of amount. Is it worth one billion dollars just to weaken your competitor? I think Google’s social networking competitor just spent a load of cash—doesn’t that weak their position?
Maybe you’ve seen ABC’s reality program Shark Tank. In this television show, venture capitalists decide if they’ll invest in ideas pitched to them right before the camera. Of course, being the vultures they are, they only want to invest in businesses that actually do, well, business…you know, the kind that make money? I wonder how well Instagram would have done on TV.
Many of today’s start-ups talk about being flipped, that is, sold for millions, as part of their business plan. Andy Grove, former CEO and founder of Intel recently told NPR that his two least favorite words were “exit strategy.” I’ve always felt that the best exit strategy a company could have, is just go and be a successful company. Build a business, sell something, repeat. During the dot.com era, that idea went out of fashion. Well, if Facebook has its way, it’s not coming back into fashion any time soon.