10th April 2012
Yet the power of Instagram's user base shouldn't be underestimated. This is made up of around 30 million registered smartphone owners.
Even so the sum is huge. Around $1bn could also buy The New York Times Company, for example, with Q4 revenue $643m, and a market cap $942m. And the website of its flagship title has an estimated online readership of more than 44 million per month, some of whom pay to access it – unlike Instagram's users.
Opinion is certainly divided. TheBoggart comments: "That the directors of Facebook can't see that buying this two-year old company with no revenue for $1billion is a colossal error of judgment simply provides one more good reason for not buying Facebook shares.
"If and when Facebook launches onto the stock market it will be traded by the microsecond by barrowboy dealers out to make one cent a share profit before reality dawns."
And history shows that hefty tech purchases may come before a fall. Already, the seeming mismatch between Instagram and fallen social network acquisitions is proving a popular topic. For instance, Friends Reunited was sold to ITV in 2005 for £120m ($191m). Last year, DC Thompson, which bought the website in 2009, told its shareholders it was worth only £5.2m.
Recently, Instagram was rumoured to be valued at a measly $500 million. A few months ago it was $300 million – while just over a year ago it was valued at $100 million. The soaring value of the company was reflective of the growing audience it has been garnering, despite being just on the iPhone.
Zuckerberg's own blog post gives some clues: "This is an important milestone for Facebook because it's the first time we've ever acquired a product and company with so many users. We don't plan on doing many more of these, if any at all. But providing the best photo sharing experience is one reason why so many people love Facebook and we knew it would be worth bringing these two companies together."
At its heart, Facebook is essentially about photos, and Instagram had found and attacked Facebook's achilles heel – mobile photo sharing.
Instagram also has what Facebook craves – passionate community, says a post on Gigaom. "People like Facebook. People use Facebook. People love Instagram. It is my single most-used app. I spend an hour a day on Instagram. I have made friends based on photos they share. I know how they feel, and how they see the world. Facebook lacks soul. Instagram is all soul and emotion."
So it seems this also signals the rise of Cool Capital – Facebook needs a fresh image. In February, Business Insider described Instagram as the biggest threat to Facebook. "The biggest threat to Facebook isn't Twitter, as some may think. It's the out-of-nowhere startup that allows people to do what they like to do on Facebook easier and faster.
"What people like to do on Facebook is share and view photos of friends and family. Facebook is popular because it is the easiest way to do that over a computer…
"Instagram isn't perfect. You can't label your photos with your friends' names like you can on Facebook, for example. But what's great about it is that it is very fast – especially compared to Facebook."
So it may seem staggeringly expensive, but consider Google's acquisition of Youtube. It seems that the powerbrokers in the world are increasingly attributing value towards the size of user base and its potential growth.
Anyway, buying Instagram improves Facebook's mobile offerings, says Wall Street Journal, while removing a rival for users' attention – but is it worth this sum? What do you think?
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