Facebook buys Instagram for $1 billion: is it justified?

Posted Apr 28, 2012 by Faculty Blogs

My first reaction, at reading this news from Rome, was “it’s not at all justified." At the time of reading, Instagram boasts around 27 million users according to Techcrunch. One of these users is me and I am valued at… $37.04 ($1b / 27m). This is more than the value of each Facebook user.

Making sociology and marketing out of a case of 1.

How pinteresting!

I have been using Instagram for a few months now, I have posted a few pictures, followed a few people and reposted some of these pictures on facebook a few times. The repetition of the qualifier “few” is intentional.

Extending the radius of my qualitative research to the few friends I have who do use Instagram, the maximum extent of my interaction with their Instagram posts at best has been around 10 seconds in the rare cases when a picture managed to capture my attention.

If the Instagram nation were like me, we would be worth a few cents; more probably zero. (What is even more ironic is that according to the Wall Street Journal Mark Zuckenberg himself, has used Instagram only once… last June).

Nonetheless, investing is about how things might be not how they have been till now.

In a letter posted to his timeline, Mark Zuckerberg said that: “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 together."

(Read full statement)

So what might Mr. Zuckerberg be after? What does he see that is not immediately obvious to me?

Would it be that there is more data to be acquired from Instagram users? According to VentureBeat, Facebook has 845 million monthly active users and 2.7 billion comments and “likes” per day. So 27 million new users would be like a drop in the ocean or as if Poland’s population somehow joined China.

How about integrating different features from Facebook to Instagram and back? Is there anything that Instagram pictures, the location where they were taken and the person who took them might reveal something new? Well Facebook already does this very well, perhaps not with filters as Instagram does but artistry does not influence data-gathering.

Are there any patents that Instagram holds that we are unaware of? This is unlikely as there are many similar apps such as camera+ that provide the same, if not better features.

Is it the quality of the programmers? I am sure they are good but at $1 billion, you could buy Manchester City all over again.

For now though, I can only think of a defensive move as a semi-reasonable justification. We know that Google was also eyeing Instagram (possibly to add to their Google photos) and so Facebook paid a premium to thwart Google.

By the way, what is Pinterest now worth?

Please leave your opinions below.

Original article published  in Italian by qdR magazine. English version re-published from Mediacodex.

Wahyd Vannoni teaches marketing and communication at Hult International Business School London and consults with Italy’s largest companies and public sector entities. 

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