The news that Facebook has acquired Instagram makes perfect business sense. After all, mobile is most definitely the future, and Facebook’s own mobile app efforts have been the subject of plenty of criticism. Instagram has a user base that is increasing at a great pace. It picked up 30 million iOS users in only 18 months and was named iPhone App of the Year 2011, and the app is now officially now on the Android Market, and is adding a million users a day. However, the current problem with mobile apps is the lack of revenue they generate.
With that in mind, it raises what can only be described as the billion dollar question. How can Instagram, a 15-month-old start up, with only approximately 10 employees, go from being a completely free photo-sharing app which has yet to bring in ANY revenue whatsoever, to becoming acquired by Facebook for $1 billion in cash and stock? Surely that is crazy money?
There is a good chance Instagram won’t be providing revenue anytime soon, if ever. But what it does provide is a great mobile experience the meshes well with Facebook. After all, you don’t share Instagram photos on an Instagram website, you use Instagram to take the picture and apply your filter, before sharing the picture on Facebook and/or Twitter.
How Facebook decide to move forward with their newly acquired company is something that only they truly know, but for the time being, Mark Zuckerberg has promised to let Instagram continue to run as it is, as a separate company which will continue to operate in the same way.
The acquisition of Instagram comes just a couple of weeks after Zynga (creator of popular apps such as Words With Friends) paid approximately $200 million to acquire OMGPOP, just six weeks after the company released its wildly popular app ‘Draw Something’.
These 2 acquisitions seem to highlight a new trend in mobile and social of ‘If you can’t beat ‘em, buy ‘em!’. No matter how you look at it, one thing is for sure, with the amount of money being spent on these acquisitions, it’s clear to see the belief these companies have on how big social will continue to get in the future.
In any case, it’s very easy to see how we get to an arms race in the world of mobile apps, where companies will become paranoid that they’ll miss out, so they pay over the odds to make sure a hot app doesn’t land into the lap of a competitor. This is what I believe has pushed the acquisition of companies like Instagram and OMGPOP.
This bubble is going to make some young entrepreneurs very wealthy and some quick returns for lucky VCs. Whether it turns out to make an ounce of business sense, it’s the kind of question that tends not to get asked until much, much later, so let’s watch this space.