There were lots of reasons for Facebook to acquire Instagram, but many including myself speculated that it was for purely defensive reasons and that Facebook paid a billion to preserve its own core business. It's a widely held belief that Facebook grew its entire network through photos in the early days, and many would argue that is still the fundamental core of the site that keeps millions of people coming back on a daily basis.
Facebook was able to build additional features and functionality around their photo product, and according to Instagram's founder, they were about to do the exact same thing themselves. So why sell now? Well probably for the cash and the fear of losing it all one day if it didn't work out.
Ironically, Facebook had a similar $1 billion offer from Yahoo in the early days and people called Mark Zuckerberg nuts at the time for turning it down. History has gone on to show that he was right to reject it, but what about pre-revenue Instagram? Was the company right to take the cash when they could or should they have held on and tried to do what Facebook did to Myspace?
Photos Were Only The Start
The really interesting thing about watching this video with the Instagram founder (shot three weeks before the sale) is that he talks about photos only being the start of the experience via the app. He speaks in the same broad terms as Zuckerberg does when he talks about sharing. The beauty of Instagram is in its simplicity, but there is nothing to say that they couldn't have rolled in additional features over the coming years in the same way that Facebook did.
Instagram Is Already A Platform
To make it really big in the world of social networks, you have to become a platform and have people build other really cool features on top of your service. That is exactly where Facebook and Twitter have had all their success. Instagram are already opening up as a platform and there are tons of really cool apps and third party services being built around the success they have had. Developers always flock to where large amounts of users are and withInstagram fast approaching the 50 million mark, it's clear that many of them see themselves building businesses on top of the fledgling service.
The First Truly Mobile Social Network
What scared Facebook the most was that all of the action on Instagram was taking place on mobiles. With the entire world moving towards smartphones and spending less time on their desktops, the future of social networking is certainly going to be mobile. Instagram had a huge advantage here and no matter how hard Facebook would have tried to catch up, their mobile apps would never have been good enough in comparison. Nobody could compete with Facebook on the desktop, but Instagram were hitting them where it really hurt and Facebook knew that.
How Big A Challenge Were Instagram?
Lets not kid ourselves here, Instagram was a tiny app that was only available on one platform until recently. They were not going to kill Facebook overnight or even eat into their user base in any meaningful way but they were getting lots of traction.
They are closing in on 50 million users and although that is 20 times smaller than Facebook, it was their rate of growth that was scary. They were doing it all with a very limited amount of money and only fourteen members of staff. Imagine what they could have done with similar funding to Facebook. Imagine where they could have been in two years time with 200 million users, additional features and across all platforms.
The sad thing is that we'll never know, but I think they had a real shot at being the first company to really take the fight to Facebook on their own turf. It would have been interesting to watch, but you just know that Facebook made the right call on this one. One day in the future, we'll look back and $1 billion will seem very, very cheap.