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.
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.
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.
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