Dennis K Berman, marketplace editor for The Wall Street Journal, summed it up with a single tweet: "Remember this day. 551-day-old Instagram is worth $1 billion. 116-year-old New York Times Co.: $967 million." While the rest of us were scoffing down our Easter eggs, Mark Zuckerberg splashed out $1 billion to buy a mobile app that makes your photos look like they were taken in the '70s.
The numbers are mind boggling. Instagram had less than 100,000 users in October 2010. By December, 1 million. Three months later, 2 million. By the start of November 2011 photos around the world were being vignetted and overshared by 12 million iPhone users. On April 3 this year Instagram launched its Android app, and picked up a lazy 1 million new users in a day. By the time founder Kevin Systrom was calling Zuckerberg "boss", the app was being used by over 35 million people. To give that number some perspective, Instagram was installed on 1 in 10 iPhones in the world.
Unsurprisingly, in the last week there's been a wave of speculation around why Facebook acquired Instagram. For advertisers, there are three key motives worth paying some attention to. And it's not necessarily because they paint a rosy future for mobile and brands.
Firstly, and most obviously, Instagram was beginning to pose a real threat to Facebook. While even 50 million users is a fraction of Facebook's audience, Instagram had grown its user base fast. Even more importantly was how it had grown it: photos. Facebook knows first hand how powerful photos can be in building a social platform. It was the addition of photo tagging that saw one of the biggest spikes in user growth in Facebook's history. Partner this with the fact that Instagram has perfected the "content graph" - the ability to identify and recommend photos based on the photos you take and the tags you use - and it's understandable that Zuckerberg was getting twitchy. On the Thursday before Easter, Instagram secured a $50 million round of funding, at a $500 million valuation. Cue complete twitch out.
Secondly, Zuckerberg wants to diversify. While Facebook will go public in the back half of this year, the founder still controls 57% of the company's voting rights. In a letter to would-be investors in March he stated he wouldn't be listening to "whiny short-term public shareholders". Zuckerberg clearly doesn't think that just adding new features for users or advertisers is the future for Facebook. He needs to diversify, and he's willing to make some long-term bets in doing so. Looked at from this angle, the Instagram acquisition looks and feels a lot like Google's $1.65 billion acquisition of YouTube in 2009.
Finally, and most importantly for advertisers, Facebook just hasn't been able to nail mobile. Last year its revenue climbed 69% to US$3.1 billion. In Australia, 2011 SMI data reports over $26 million was invested in advertising on the platform. But not one dollar of this came from mobile. Facebook doesn't often talk publicly about mobile for this very reason - it even listed the lack of mobile advertising as a risk in its IPO filing. But the platform's growth in mobile, like mobile itself, has been stratospheric - in December 2010 it saw 432 million people accessing the site via mobile, up 76% from 12 months earlier.
In its acquisition of Instagram, Facebook has picked up arguably the hottest mobile-focused development team in the world. While Instagram will continue to operate as a separate product, you can bet that those developers have now been tasked with creating a scalable, user friendly, content-aware solution to get brands investing in ads on Facebook's mobile platform. Once it's cracked that, it will move on to creating an offering for any app developer to integrate advertising that utilises Facebook's Open Graph. Facebook doesn't just want to get mobile advertising right, it wants to become the biggest mobile advertising network in the world.
What will now keep Zuckerberg awake at night is the fear that he's actually hunting a unicorn. Outside of paid search, no media company has been able to mobilise its existing advertising revenue successfully and meaningfully. While Instagram had outlined plans to create advertising revenue, it was still a long way off implementation. If Facebook can't get mobile right, the bad news for brands is that they will continue to be excluded from what is now the fastest growing media channel in Australia. And it's highly unlikely that any consumers will miss them.
Nic Hodges
Head of Innovation & Technology
MediaCom
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