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BLOG: Why Facebook bought Instagram for a billion dollars

Lex Friedman | April 11, 2012
When news broke Monday regarding Facebook's eye-popping US$1 billion acquisition of mobile photo sharing network Instagram, I experienced a variety of immediate reactions:

And even if Instagram too can swell to hundreds of millions of members, it's likely that the overwhelming majority of those members would already have Facebook accounts, too.

But nonetheless, it's clear that Instagram's potential remains off the charts, and its growth rate is impressive--all the more so when you realize that, until a week ago, its entire membership solely consisted of iPhone owners. There's no official website of any merit, and no official desktop client, either.

A photo finish

From my perspective, Facebook's primary reasons for acquiring Instagram didn't focus on the members or the technology. Rather, the apparent goals are to ensure the larger network's continued dominance in photo sharing, gain still wider adoption on mobile devices, and of course gain access to some of the data that such photos provide--who's taking them, where, and when.

What are the other big photo-sharing networks Facebook could have aimed to acquire instead? Flickr, while still sizable, seems to be running on fumes. Picasa is small, and Google's not going to sell it to Facebook. Beyond those, there aren't any photo sharing networks with enough traction or activity to catch Facebook's eye.

And Facebook knew something about Instagram that many of the photo-sharing service's own members didn't want to acknowledge: Instagram essentially needed to sell; an utter lack of any revenue--and no plans to add one--isn't a recipe for long-term viability. Without an acquisition, Instagram faced a too-common painful choice between burdening its service with fees, ads, or both, or eventually run out of investors willing to fund things for everyone.

Put another way: If it weren't for Facebook, Instagram would soon enough surely have belonged to someone else. Facebook, like Apple, is big enough that it can buy impressive upstarts--even overpaying in the process--in part so that no one else can buy them instead.


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