Now that the dust is starting to settle down a bit on Facebook’s acquisition of Instagram, one cannot help but wonder if Facebook ended up overpaying for Instagram. Instagram recently raised $50 million in funding with a $500 million valuation and it has already hit more than five million downloads with its Android release. Instagram, it seems, is going from strength. But with everything going so well, I cannot help that niggling feeling that this has to be some sort of a bubble.
Don’t get me wrong; maybe with this acquisition Instagram has better resources at its disposal to achieve a deeper market penetration. But I wonder if an acquisition was really necessary, a joint venture or a partner project with Facebook would have served just fine. You might wonder why I am so averse to the idea of an acquisition. This has got nothing to do with the popular opinion that Facebook is going to screw up Instagram in some way. It has more to do with the soundness of this business decision. So Instagram is the new “IT” app for taking photos and has got some pretty sweet filters, but what does it really mean for Facebook? Does this acquisition even align with Facebook’s strategic business objectives? Facebook seems to have succumbed to the winner’s curse and ended up paying a lot more than necessary for Zuckerberg’s new toy. A friend pointed out: “Instagram: $0 ad revenue, 0 ad impressions, $1Billion acquisition on no hard assets.” Really what did Facebook pay $1 billion for, goodwill?
But business decisions aside, what does this acquisition mean for Instagram? It means that they have more money to do whatever they want to with the most popular photo-app ever. As one Mashable article commented: “you’d give Instagram founder Kevin Systrom whatever budget and engineering talent he wants to make this killer app even more killer.” Given Facebook’s Timeline feature and focus on visual story telling, the Instagram acquisition might be a good tactic to further this agenda. Remember how people went up in arms when Google bought YouTube and thought that it was the end of YouTube as we knew it? Though this acquisition did nothing for Google’s perception amongst its audience, it did provide resources that helped YouTube to scale up and make it big. Instagram has had an extreme run of good luck (Not Facebook; nothing will change the fact that they overpaid by way too much) and now it remains to be seen what other features they bring to the table to justify that price tag. What do you think? Can Facebook and Instagram make this relationship work?
Author: Joanita Bora