I expressed my thoughts about the acquisition on FB/+/Twitter, thought of putting it together at one place.
People who felt that Facebook bought a photo sharing social network definitely didn’t get it. Those who cited about 30M user base too don’t.The biggest social network ever, with 845M+ users does not need a “social network” or 30M (or even with Android, let’s say 60M) users (of which a great number are already FB users anyways). People who ask about the revenue stream or ads, also fail to look at the big picture. So why did Fb buy at all. One answer: mobile.
Fb’s app, even though most popular across all platforms, doesn’t give a good experience to the user. It’s HTML5/hybrid approach is boring, buggy, not robust. The mobile development resources in Instagram is valuable. But couldn’t FB build by itself ? It could, but that would take time; their Android app revamp was so delayed. One more hint : Facebook has been trying to hire iOS developer (a person I know interviewed), why would Facebook want to do that, if its platform is going to be HTML5 ? But more importantly, capturing Instagram makes sure competitor doesn’t get them or kill the potential competitor.
Mobile traffic, especially in future, is extremely important. Photo sharing is critical to FB from beginning. A solid mobile team. Short term and long term strategic advantage over competitors: with so many reasons, it is easy to see that it is a good acquisition. But those questioning if it is worth1B.
Answer is simple, FB itself is not worth 100B that it is valued at If you have it, flaunt it and scare the shit out of competitors As someone on Twitter said, every complaint about $1B is a jealous cry that “I want $1B, I didn’t get but he got it” ! But seriously though, when considered stupid( not saying it is bad, but it is just a silly game after all in the big picture), addictive games like Draw Something can make the company worth 200M, photos have even more a)social/sharing element b) emotional appeal c)integral part of mobile. It isn’t a surprise that it’s valued higher. Years ago, everyone wondered at the valuation of 1.65B of YouTube, now Google is finally reaping the benefits..
But my Finance Prof will sure be squirming looking at the revenue streams, cash flow and what not. Looks like another boom-bust is surely around in the social space. I personally wish this social-fever ends soon, and people go back to building meaningful and more important products.
I can’t stop wondering about one key thing this is the company that has one mobile app..that’s it. Lot of traditional companies are built (but never reach this much valuation in their lifetime) by considering complex operations, marketing, finances, human resources, capital investment and what not ! True that lot of previous technology companies such as Zynga, LinkedIn, FB have raised eye brows with their valuations/IPOs. But even they have been more complicated than a mobile app. Amazing to see how this market/platform is affecting the equation !
Long time ago, (there still could be), there was debate among media if IIM MBAs were “worth” the crores they were being paid. The obvious answer was, who defines what something is worth – as long as someone is ready to pay that amount, that should be the value. The supply-demand that makes the same square inch of land cost different in different cities doesn’t seem unbelievable to anyone anymore. All this is basic knowledge. But furthermore, when people copmared NYT value of <1B to Instagram and said “2 years company is worth 1B and 161 years company NYT is less than that” – it was even more ridiculous because that is not even fair comparison – how do people come up with such stuff. At least comparison with Kodak is kind of valid.
And then someone will calculate the number of users of the app and decides the worth of each user ; or calculate the number of employees and calculate the value each employee provided. They are fun numbers to talk about, but forget an important point – the valuation, just like the stock value, is not for the past, but for the future anticipated value.
Over twitter, a friend suggested Facebook sees value in more valuable targeted advertising that would be possible due to the personal nature and frequency of posting on Instagram as against that on Facebook. The targeted advertising would make use of the user data – not the demographics of the users of the Instagram- but the content of the photos which contain products and brands and the ads would be served to those Instagram users on Facebook. Although this is technically possible, I am highly skeptical that this would be practical in a business sense in any time in the future. Even after all these years, only targeting that is working well are cookie based, demographics based, text-contextual.
The more I think about it, Facebook is in such a good position to deliver more on mobile platform. If the Facebook currency does indeed take over the world, mobile payments would be very useful for Facebook as a platform. Also, if long rumored FB phone does come true, Facebook can do so much on the mobiles.
But all this is a long shot for me, unless something is already in the works inside FB. For me, it is very simple : capture a competitor, avoid a promising opportunity from being a part of a competitor, send the signal that Facebook is serious about mobile development. And money – FB can afford, so do.
And finally, I would really like to look at the revenue projections or any sort of analysis that might have gone into, if any, before Zuckerberg came out with the magic number of $1B. Or even the details of negotiations that Instagram owners did, if any, especially because a day before their valuation was $500M !