Facebook significantly expands mobile presence with $1B Instagram deal
By Chantal Tode
April 10, 2012
In its largest acquisition ever, Facebook has acquired mobile photo sharing application Instagram for $1 billion as it looks to build its mobile presence.
With its user base increasingly accessing the social network from mobile devices, Facebook has publicly stated that it knows it must build a mobile strategy. The size of the deal for Instagram — a mobile-only social network that lets users share photos — reflects not only the significant success that the app has achieved in less than two years but also the key role that photos play in the Facebook experience.
"While the dollar amount might be on the high side, this is a very smart acquisition for Facebook," said Dave Martin, senior vice president at agency Ignited, El Segundo, CA.
"It won’t immediately have an impact on buyers, but it offers Facebook a chance to evolve their mobile ad products way beyond targeted ads or sponsored stories in the mobile newsfeed," he said.
"I don’t expect Facebook to make any wholesale changes to Instagram right off the bat, but embedding brand ads into the Instagram photo stream using Facebook’s targeting capabilities could be the high-impact ad product Facebook has been missing."
Mobile-based social network
Instagram reportedly has 25 million users worldwide, making it the largest mobile-based social network.
It was only been available on iOS devices until recently. The company recently launched an Android app and reportedly signed up 1 million Android users in the first 24 hours it was available to the operating system.
Despite Instagram’s success, the amount that Facebook is paying to acquire the app has raised some eyebrows because the company is still relatively small — there are reportedly just 13 employees — and it has no business model for generating revenue.
However, Instagram’s rapid ascent in an area that Facebook considers one of its strengths — photo sharing —suggests Facebook may have felt it needed to make this deal before someone else did.
“Facebook is looking to aggressively expand its footprint into mobile, where consumers are spending increasingly more time,” said Peter Farago, vice president of marketing at Flurry Analytics, San Francisco. “Mobile, as a platform, has the most potential to disintermediate Web-based businesses like Facebook.
“Photo sharing is among the most seamless and popular activities on mobile devices,” he said. “Apps like Instagram allow the consumer to further express themselves with editing and expanded sharing to social networks.
“It can be argued that, at its core, Facebook is a photo sharing service. The idea that Facebook can extend the ability for users to share photos through Instagram, once it is theirs, into the core Facebook experience is a powerful move in terms of both its core value proposition to consumers as a social network, as well as Facebook's desire to expand more pervasively across mobile."
Part of the reason for Instagram’s success is its integration of a camera and photo album along with the ability to email and message photographs, making photo sharing very easy on mobile devices.
Facebook may also be attracted by the fact that Instagram is beginning to be used by brands. The app enables brands to create content, showcase products and give a behind-the-scenes look at their culture.
Brands such as Coca-Cola, Chobani yogurt, Anthropologie, Gap and Glamour magazine have all used Instagram to show off products and establish a two-way dialogue.
A big move
Facebook said it will not get rid of the Instagram app but will instead continue to build Instagram independently.
This is the first time Facebook has ever acquired a product with so many users, CEO Mark Zuckerberg said in a post on his Facebook page.
“We don't plan on doing many more of these, if any at all,” Mr. Zuckerberg said. “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.
“Millions of people around the world love the Instagram app and the brand associated with it, and our goal is to help spread this app and brand to even more people,” he said.
Facebook plans to keep key Instagram features such as the ability to post to other social networks, the ability to not share Instagrams on Facebook if a user chooses and the ability to have followers and follow people separately from Facebook friends.
The social media giant also said it will try to learn from Instagram’s experience to build similar features into its own products.
Users love apps
Facebook recently filed paperwork for an initial public offering some time this year that values the company at $100 billion. In the filing, the social network revealed that the number of Facebook users accessing the social network from mobile devices is growing, sometimes at the expense of PC use, which could result in a decline in advertising revenues – which are derived from desktop advertising - unless Facebook can monetize mobile.
Mobile apps, in general, continue to grow in popularity with consumers, who are spending more time engaging with apps than browsing the Web via desktop or mobile, according to Flurry Analytics.
“We are simply seeing larger companies adjust to the reality that their audiences are moving to mobile apps,” Mr. Farago said. “Companies are trying to follow consumers, to stay close.
“Beyond the total time consumers are spending in apps, which now surpasses that of the Web, iOS and Android consumers download 85 apps,” he said.
“In terms of total numbers since just 2007 Apple last month crossed a record 25 billion downloads from more than 550,000 available apps. Google announced in December 2011 that it had crossed 10 billion downloads from 400,000 available apps.”
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