Facebook has recently acquired the very cool photo sharing company Instagram. Some observers hail this as a smart move by Facebook, while others feel is it a huge mistake. Before we can decide we have to take a look at some numbers and what they mean.
Is Facebook Just Showing Off?
Facebook paid a bit over $1 billion in stock and cash for the deal. They can afford it; they have over $3.9 billion dollars in assets. It is thought by some that Facebook bought Instagram because it could. A billion dollars is cool, but spending a billion dollars just because you can is uber-cool. If this is the reason, then Facebook is just being a big show-off.
Buying Instagram Will Not Increase Their Active Users by Much
Instagram has 35 million users. Facebook may have been hoping these users would join the Facebook family. But chances are most of the 35 million Instagram users are already active Facebook members. So much for hoping to use Instagram as a membership vehicle.
Why Buy a Company with No Revenue?
Instagram only has 12 employees and has yet to produce revenue. So basically Facebook just paid a giant wad of cash for a handful of staff, and no money coming in. I don’t know about you, but to me that isn’t good business sense.
There She Blows!
There are internet gurus who feel the 2.0 bubble is about to burst. What this means is the social networks will soon hit the wall. There are only so many people in the world and a limit to the number that can access sites like Facebook and Instagram. While Facebook has experienced mind boggling user growth since its inception, this trend can’t continue for much longer.
It reminds me of the mid 90’s when internet companies were being created but later failed because they had no revenue and no real value. Stocks rose, people bought into the company hoping to make millions, only to see their money and their dreams dry up a few years later when reality hit.
You Gotta be Real
The internet is like any other community. You have to have something real to offer people to be a success. Popularity only takes you so far, and being cool only lasts so long. Is this acquisition a last ditch effort on Facebook’s part to keep the lead on trends? Or did they buy Instagram before anyone else could snatch it up?
So the bottom line is Facebook bought a company with only 12 employees and no revenue for an obscene amount of money. Perhaps Facebook was hoping to tap into the hipster cool of Instagram since the average age of their users is increasing. Maybe they don’t want to be seen as a Granny site, and Instagram was bought in the hopes it would add to their cool factor. On a positive note users of Facebook do love to share photos. Now that Facebook owns Instagram this should be easier. Time will tell if this acquisition was a mistake for Facebook.
