INSTAGRAM FOR A BILLION DOLLARS. BUT… BUT… WHY!?

That’s the question we have been mulling over since we heard the news that Facebook bought Instagram for a billion dollars. Frankly we were shocked. Not because Facebook bought them, but because they bought them for so much! We are no finance experts and don’t really understand this whole concept of valuation but a billion dollars seems a little much if you ask us. In no way we are saying Instagram is a bad app, no, it is quite handy but let us take a look at what exactly they offer:
  1. Filters for the pictures you take that can be applied prior to posting them on your social networking sites such as Facebook, Tumblr and Twitter.
  2. Creating a photo log similar to Pinterest that friends can check out, comment on or share.
  3. Apps for iOS and the Android operating systems.
That’s it. They do have 27+ million users that have downloaded the iOS version (which came first) and very recently released their app for the Android, which by the way was almost a year and a half since they said there would be an Android app (they had other priorities they said for the reason it took so long to release the Android app). We understand they are not a very big company and things take time to evolve, develop and test. Fair enough. Granted the mobile versions of the social networking sites’ (Facebook in this case) photo upload features aren’t exactly cutting edge but one has to question Facebook’s decision to purchase Instagram though. Given their technical expertise and market exposure, one has to wonder about the following:
  1. Couldn’t Facebook have developed something similar to Instagram in house for let’s say a third of the cost? And a lot quicker?
  2. Facebook has an established audience. This makes it a lot easier for them to roll out new features/apps and get the word out. Considering Instagram’s adoption rate, we find it hard to believe a Facebook equivalent would not do just as well.
  3. Is Facebook getting lazy? Could it be the case of “Oh we have the money, why bother developing when we can buy them?” We hope not. And we hope they aren’t resting on their laurels either. That is a bad sign.
  4. Is Facebook getting the pre-IPO jitters? This is possible since we are not that far off from the Facebook IPO filing (which is already turning out to be the biggest… EVER). And as a result, Facebook wants to remove any possible competition to maximize its cash intake.

In the end, the takeaways for Facebook (that we see) are: the ability to manipulate photos before you upload them and the ability to upload your photos to social networking sites other than Facebook.  Yes you also get Instagram’s user base but still… That’s not much for a billion dollars. Whatever the reasons are, we are happy for the folks at Instagram and wish them the best. But we also hope Facebook has not placed a sucker bet that might come to bite them later.

Update: Looks like we aren’t the only people flummoxed by this. Check out the article published by Reuters.

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