As we are all wondering – why and….that much? First the latter question – Facebook did this deal relatively quickly and very much on the down low. The only way this happens is if Facebook paid a substantial premium. Teams with much deeper pockets such as Google or even Apple could have easily created a bidding war so I have to tip my hat Mark and Sheryl for pulling this off. It’s a major power play and it goes to show that Facebook is very serious about competing head-to-head with Google.
The former question – why – is much easier to explain. While Facebook is already the king of web photos, Facebook is relatively weak on the mobile front and there is much improvement needed with Facebook in that arena. I fully expect to see much effort, improvement and innovation by Facebook in the mobile space in the next 12 to 18 month. Second, Instagram and its multitude of photo uploads is an excellent compliment to Facebook’s other major effort at the moment – Timeline. Instagram make it that much easier to get more information on one’s Timeline.
In closing, a billion bucks seems like a lot but Facebook will get all that cash back (if it is a cash deal) when they ring that IPO bell in 2012. The best line from one of the two articles above: “Kodak goes bankrupt and Instagram is worth a billion dollars” – Wow. Creative destruction (click here for full post) exemplified.
Associate Professor of Marketing
Stillman School of Business
Seton Hall University