Why Facebook acquired Instagram for $1 billion

Why Facebook acquired Instagram for $1 billion

Summary: Facebook is acquiring Instagram for $1 billion. The question is: why? There are many reasons against Facebook buying Instagram, but there's really just one big reason for the purchase.

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Facebook today announced it is acquiring Instagram (and its 13 employees) for approximately $1 billion in cash and stock, just two months after a rumor suggested the Facebook photo sharing app for iPhone had been killed and a year after Facebook tried acquiring Instagram the first time. This is a huge acquisition for Menlo Park, not only because Instagram is being kept as a separate entity, but because this is Facebook's biggest acquisition to date.

So, how does this purchase make sense? After all, the purchase is 27 percent of Facebook's revenue in 2011, and Instagram doesn't really have a business model. The announcement brings more questions than answers, but I think I have an idea where this purchase is coming from. Keep one thing in mind as you read: Facebook sees 250 million photos uploaded daily.

First off, some have speculated that this is about patents, specifically so Facebook can further attack Yahoo's Flickr division. The problem with this argument is that Instagram has no patents. Even if Instagram files and is granted gets some, it will likely be too late: Facebook and Yahoo will have already settled.

As of my last count, Facebook has 812 patents. It bought most of them from IBM. Remember: you go to old large companies for patents, not new startups.

Secondly, some say Facebook bought Instagram for its users. Instagram has over 30 million accounts on the iPhone, as of April 2012. Even if you add the 1 million new users when the Android app launched, this is nothing.

Facebook is huge. The social network has over 845 million monthly active users and over 432 million monthly mobile users as of December, 31 2012.

Lastly, some have argued Facebook is already strong in mobile, so there really is no reason to bother with Instagram. Facebook only has such a strong mobile following because the company's desktop service is so popular. The social networking giant has a lot to learn about the post-PC world, and something tells me Instagram employees will be helping with that. Facebook says it wants to be a mobile company, and acquiring a very successful mobile app will certainly help.

In short, Facebook didn't buy Instagram to kill it, to increase its number of users, nor for patents. Facebook bought Instagram because the company wants to push forward in mobile. I'm not the only who thinks this; my colleague Ricardo Bilton agrees (see Facebook buys Instagram: It's not about the photos or filters).

At the end of day, Facebook is all about sharing photos. Instagram is all about sharing mobile photos. Keeping that in mind, the acquisition actually makes sense: Facebook today acknowledged Instagram does a better job with mobile photos than the social networking giant could ever do. So that's really the main reason for the purchase: Facebook just didn't want Instagram as a social competitor any longer.

You can read about the acquisition announcement at three different places: Facebook, Mark Zuckerberg's Timeline, and on Instagram.

See also:

Topics: Banking, Enterprise Software, Social Enterprise

Emil Protalinski

About Emil Protalinski

Emil is a freelance journalist writing for CNET and ZDNet. Over the years,
he has covered the tech industry for multiple publications, including Ars
Technica, Neowin, and TechSpot.

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5 comments
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  • Was it worth it?

    It all depends on your perspective.

    http://www.johnvarghese.com/the-instagram-acquisition-in-perspective/
    jv4blog@...
  • Demo

    Facebook demonstrates fake power with Instagram purchase...
    http://dobrisratings.com/index.php?option=com_content&task=view&id=149532&Itemid=111
    Dobri Bozhilov
  • stock exchange

    Facebook is trying to persuade us that it costs much, after deciding to buy a small company, making it big with a $1 billion deal. The most interesting question now is where is the money for this investment? Obviously it is not the 2011 profit. Instead Mark Zuckerberg will pay with shares whose value no one yet knows.

    When Facebook buys for $1billion a company with 13 employees, this is expected to mean that the value of Facebook is $230 billion with its 3000 hired at company. This is a joke of course. But such types of big as value acquisitions are usually made by more stable corporations with a guaranteed cash-flow and at least some time of stock exchange history.

    I think this $1 billion for Instagram is a too big bite for a new on markets and not yet proven business as Facebook. Such types of adventurous decisions are risky and can lead to bad consequences for the entire business model. Yes, it is good to make you look big when making big purchases. But often big and thoughtless purchases just lead to losses and even worse...
    imDhaval
  • If this were dell or hp buying some website nobody has heard of

    nobody would care
    zmud
  • Why one buys a successful startup

    One buys a successful startup for three possible reasons:

    1. To kill it, so that it does not mess around.

    2. To assimilate it, in order to bolster it's own products/services.

    3. To prevent someone else from buying it and messing around.
    danbi