Facebook Snaps Up Instagram
With Facebook’s US$1billion purchase of Instagram today you could be forgiven for thinking we are on the verge of a new dotcom bubble. Sure the app allows people to apply a filter to alter the look of a picture and share it with friends on Facebook, Twitter and text but Lord – US$1billion!
The news comes hot on the heals of Zynga’s $200 million purchase of OMGPOP and its app Draw Something, an online version of the popular board game Pictionary and of course Google’s US$1.65 billion purchase of YouTube in 2006.
Like many of the dotcom failures back in the late 1990s, Instagram is profitless and while it boasts more than 27 million registered users and more than 50 million downloads, ultimately a stable earnings stream is the key to success.
There is no doubt the two-year old company fits Facebook’s photo sharing strategy and given Facebook’s recent enhancement to its app that allows user to view images in full screen, so there is clearly some benefit but US$1billion worth of upside?
It was encouraging to hear that Facebook founder Mark Zuckerberg informed his followers that: “This is an important milestone for Facebook because it’s the first time we’ve ever acquired a product and company with so many users. We don’t plan on doing many more of these, if any at all. Because these transactions ultimately have to deliver revenue.” More importantly though, once it is listed Instagam will need to deliver earnings per share (“EPS”) growth to investors.
It’s also worth keeping in mind Facebook’s other purchases such as Gowalla. What ever happened to take little chestnut anyway? I can almost hear the bankers in Mark Zuckerberg’s ear. Something along the lines of, you need to show the market you can make acquisitions. It will give investors’ confidence when it comes time to IPO (“initial public offering”) that it is a growth market with many acquisition opportunities.
The sustainability of this type of acquisitive behavior is questionable but one thing is certain, the founders of Instagram, Kevin Systrom and Mike Krieger, will be able to afford to spend the rest of their days taking stylised pictures.