You probably haven’t heard yet but apparently some company called Facebook has bought a company called Instagram. And in the words of Dr. Evil, it’s cost them one BILLION dollars! Matt in our social team goes beyond the headlines and looks at what this might mean for brands.
Why has it happened?
The big questions since the announcement are: why have Facebook done this and what does each party stand to gain from the acquisition? Rumours seem to fall into four categories...
Facebook has purchased a social network in the past. Gowalla, the location based social network was acquired last year by Facebook and then 3 months later they closed it down. Key members of the Gowalla team were moved across into the Facebook team to work on key projects – the rest were fired. It is this precedent which has a lot of Instagram fans worried to the point that many have already begun to export their images and close their accounts. Despite this, Mark Zuckerberg makes a point of stating, “we're committed to building and growing Instagram independently”.
Some people are suggesting that the acquisition has been for increased users on Facebook. However with 850 million users and more guaranteed as Facebook spreads into new markets, it doesn’t seem as though 33 million users (many of whom are probably already on Facebook) will make a very big difference. One of the big challenges for Facebook at the moment is turning those users into revenue. At present, Instagram represents more users, but not more revenue.
Another argument is that Instagram represents a way for Facebook to target the mobile audience. There is no doubt that the mobile market is growing exponentially within social, but Facebook already has mobile apps across all platforms. They may not always be the best user experience, but in December 2011 Facebook reported that 425 million people logged in from mobile. Again the problem would seem to be how to monetise all of the mobile users, when mobile ads remain a tough nut to crack
On the other side of the acquisition, Instagram stand to gain a lot. While they have grown quickly in popularity, the development of the iPhone app and roll out of an Android version have all been very slow. To date there is still no iPad specific app and with only a team of 12 employees this is maybe no surprise. Thanks to the acquisition they will now have access to the Facebook knowledge pool and teams of engineers who will be able to speed up the development of the Instagram offering, and potentially, begin to monetise the platform.
What do the public think?
It is safe to say that the decision has been met with a cool reaction amongst users who believe Instagram has sold out. To see Instagram, a closed, private network without any obvious commercial strategy acquired by its polar opposite has seen many disgruntled people voice feelings of “disappointment” all the way through to “betrayal”. One user even goes so far as to say “I'm outraged because Facebook is a marketing platform and Instagram is a photography platform.” Ultimately though, people do not like change. Whether they will feel strongly enough in a week’s time to delete the Instagram app remains to be seen, but chances are they will sit tight like the rest of us to see what happens.
What does this mean for Brands?
Since it launched, many have been puzzled as to how Instagram makes money. There is no advertising within the app and brand activity with the app has been minimal; it has existed as an app for users. With Zuck getting his mitts on it, this will change – even if the app itself does not fundamentally change (for now). The announcements from both Mark Zuckerberg and Instagram founder, Kevin Systrom both make it clear that they have the app’s best interests at heart and that existing users shouldn’t be worried. This has done little to quell rumour and speculation and right now there are more questions than answers.
What do we think?
Our own view is that Facebook are taking a small, but fast growing competitor out of the market before they pose a threat to them. We have seen other large companies such as Google behaving in a similar way, and using Android and Chrome as a way of protecting their main offering which is search. Warren Buffet famously likened this behaviour to a castle building a moat. The economic castle in this case is Facebook itself and the defensive moat they are creating is the Instagram platform. If we apply the Google model that Warren Buffet describes, Facebook may be planning to fund Instagram while continuing to offer it for free. They are happy that it bridges a gap between themselves and their users and will also safe guard against what could have become a real competitor.
The following weeks and months will hopefully shed more light on the future of Instagram and how Facebook plan to integrate the experience within their own platform. For now though, brands, agencies and users must sit tight and wait for Zuck to play his next hand.