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Why Facebook over paid for Instagram by about 995 million dollars.

The announcement by Facebook that it was going to buy Instagram, recent hot startup darling of the tech media for their app. that allows people to take photos and post them to Facebook with applied image filters and chat about the photos was met by accolades showered on Zuckerberg for his wisdom.

The logic was that the fast growth of Instagram showed that it was a potential  threat for Facebook, particularly in the mobile space where the app. was growing so quickly. I greeted the announcement with a mixture of bemusement and disbelief. The main reasons were summarized in the thesis I put forward in this article from last year that I wrote to explain why Google created Google+ and why they didn't really care about stealing users from Facebook.

I also, in a blog post from several years ago, before there was even a Google+ or Google wave... stated this:

"The proof of all this consolidation is clear in the numbers, users spend incredible amounts of time on the Facebook network...doing all these things they formerly did on different sites. Now, think...with such a huge investment made in having all ones interaction, content and community in one site...what on Earth can get them to switch en mass ?

I'll answer,

nothing. Barring a catastrophe on Facebook's end...they will be the last of the social networks and if they avoid Google's response (their only real competition in that they are the only ones with a suite of products that can be woven together to provide a similar experience fast enough and have a user base broad enough to maybe slow their growth) "  --
Note, the mention of Google's "response" which came later that year (Wave was announced a month before but was not revealed until later in the year), waved failed as a email replacement meant to also provide social network like features. Two years later google+ was announced and revealed quickly and has grown very quickly but for the reasons mentioned in the earlier linked post, the growth has not come at the hands of stealing users from Facebook.

Apparently, Zuckerberg acted on buying Instagram because the fear was that Instagram would be able to build a comparable social network around their photo sharing which I say,

absolute nonsense. 
They would have gotten more investor money yes, but they would never be able to build up a network as strong as Facebook or Google+ because networks tend to be *sticky* to services. I love Google+, I think it obliterates Facebook in many ways...but my network of 1,000 strong friends are not over there they are on I am stuck there for the most part, even though I like the features there better!

That would have been Instagrams problem trying to get people to do more than just share photos (flickr, picasa, photobox...a dozen other photosharing services!!) on the would have never happened. Not only didn't they have the expertise (they were all of 13 people when bought) but they lacked all the features that create the social network tipping point of features that keep people stuck on a service.

So what would have happened was a year from now (more than enough time for Facebook to have simply used internal engineers to copy instagrams features without spending any where close to 5 million dollars let alone a billion) Instagram would get more funding...growth would slow, they'd have a lower valuation and would be swallowed by some other company for a song.

In light of this reality then Zuckerbergs move looks far more paranoid than prescient.


V Nguyen said…
Well that was a no-brainer for Instragram! Too bad Groupon didn't take the 6 billion dollar offer, Lol

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