So Facebook bought Instagram. Interesting. Instagram, a photo sharing social network, not unlike Flickr, with one twist, the photos are "filtered" to make them look old. Instagram, a company with no business model, and no revenue whatsoever. I'll leave that aside for this post, though, as much as it baffles me, it seems irrelevant in these days and age.
Of course the big question is why? Why was Instagram so appealing to Facebook? Sure, it is a social network, and a rather successful one too. 30 million reported users before they launched on Android, add to that one million more in the few days post the Android launch, these are good numbers for any social network. Facebook is predicting reaching 900 million users before the end of the year. It hardly needs Instagram to boost its membership members. Facebook is now past its critical mass, and the numbers of new Facebook users are less than stellar, but that was to be expected. Instagram pretty much replicated the Facebook style of connecting users, you can friend people and follow their picture streams. Just with their sheer amount of users, Facebook must have a much larger amount of data than Instagram, and better connectivity information. I couldn't find figures on the average number of followers on Instagram, but I imagine it would be far less than the average number of Facebook friends (the latest figure I could find is 190 friends on average).
Is Facebook interested in the technology behind Instagram? It could be, but I very much doubt it. Sure, Instagram did it just right. They started with just an iOS app, and a backend. No access to the photos from their website, so just one point of access to maintain, and they did that maintenance perfectly, the app is a pleasure to use. Even on my old iPhone 3G is was perfectly usable, unlike most of the other web based social networks overburdened by app maintenance. I haven't tried the Android version but I imagine they follow that same principle of simplicity of development. Here's an interesting presentation from Mike Krieger on how they managed the scaling of Instagram. He does rather insist on the simplicity part of development and maintenance.
Facebook, however, are trying to get away from native apps, and use HTML5 technologies more. It makes sense for them, they want to be accessed from as many devices as possible, and with more and more vastly different devices, and different OSes, it's becoming a technological nightmare to natively support everything. On top of that, they can't have their own ads in native apps (certainly true of iOS, and I'm sure Google, the online ad giant, does not let anybody invade their space on Android). On top of that, third party developers are left out of mobile devices due to the lack of Flash. In short, both of Facebook's revenue streams are blocked on mobile devices. And their users are increasingly accessing their service from mobile (more than 50% of users, in fact. Nearly 14% exclusively access Facebook from mobile devices).
So, we come back to the original question : Why did Facebook buy Instagram. The answer is simple. They had no choice. Instagram was the first serious competitor to Facebook, attacking one of Facebook's main strengths, the sharing of pictures. They had no choice but to get rid of a serious competitor before the IPO. However, the cost of this acquisition is extremely high. I'm not just talking about the valuation of Instagram (they raised $50 millions at a $500 millions valuation four days before the acquisition), but also, and mainly, the lack of long term strategy for Facebook. If their strategy is to buy any up and coming competitors, they risk running out of cash very quickly. Their future very much lies on mobile devices, away from native apps, yet they acquire a native app only competitor, which they will now struggle to monetize. We'll see hoe the IPO pans out very soon, but I have to say, if I had any money, that is not a company I would invest in.