Facebook’s acquisition of Instagram: An equity investor’s perspectiveEdit
Qualitative Thoughts on Instagram x Facebook
Some people wonder why Facebook paid so much for Instagram – I know, old knews right? But relevant, nonetheless. When Facebook purchased Instagram, it was setting its footprint on the massive numbers of user engagement and growth that the photo-sharing network was observing, Facebook-like, to say the least. The meaty question turns then to how could Instagram have such wonderful metrics if it was only a rough appendix of what Facebook had to offer in terms of features and user experience?
Instagram and Facebook, IMHO, cater in their essences to two major human driving forces: the desire to see into people’s lives and the desire to show off to others. A large portion of Facebook, it is obvious to everyone that has used its software, is dedicated to learning what are other people doing: you can see their status updates, what people commented on these updates, and after some simple searching, all the activity and photos a certain person (and afterwards, everyone) has ever posted on its profile. It’s a peeking machine. The remaining portion is composed of tools to show off your status updates and photos to a varied combination of others. A small rest serves as communication between users.
In those two very important aspects, Facebook was a pioneer caterer to an almost biological group of cravings of the human “soul”. But what seemed to be perfect was – shockingly - improved upon with the advent of Instagram. For instance, on the “showing off” side, users now were able to curate much better what content was exposed to their networks. By limiting the content to pictures, people could construct much more flawless social personas; gone is the “pollution” of Facebook profiles; Just imagine how troubled to post an incredible photo of yourself on your last trip to Paris while inches away your cousin asks you about if you were able to visit grandma last Sunday because of your terrible cold. But Instagram did not end its improvement package there: it went further as to give members a series of self-serviced photo filters that are able to transform any dull, ugly picture into a glamorous, vintage and or cool version of their own beings.
On the peeking side, the Instagram experience was enhanced multiple-fold. Whereas on Facebook popularity and accessibility were inversely proportional, on Instagram the most popular people tend to leave their profiles “open”, allowing anyone interested to access its full content. This also allows users to follow popular profiles almost anonymously, since they tend to remain unnoticed when the spied upon has more than 1 thousand followers. The not-so-popular crowd, on the other hand, can hide their social insignificance behind “private” profiles, sadly justified by the oxymoron of using gatekeeping to limit the publicity of your life by using a limited version of a voyeuristic social network.
This is all not to say that the two cofounders of Instagram were geniuses in refining how their product would surpass Facebook’s feats; I am sure that, contrary to how these stories tend to be profiled with a backward looking perspective that makes these guys look like visionary wizzes, it all started as a simple photo sharing app that merged the “sharing” with the “filters”, based on the lomography movement that was taking place among American hipsters. You can’t downplay lady luck. The big redflag is how 10 guys can build an app that i) gets these amazing metrics, ii) threatens Facebook in “share of mind/time” and iii) does so in a way that ends up being acquired by USD 2 bn. Why hasn’t Facebook built it in-house? Isn’t Facebook itself growing a lot so that it doesn’t have to pay top-dollar for other apps? Isn’t that growth and innovation capacity why investors paid so much for its stock on the IPO?