Abhir Dayaram

Facebook gets a boost from Instagram

Facebook has announced it is acquiring Instagram, the photo sharing application and online company for a reported $1 billion in cash and shares. Founded just two years ago, Instagram allows users to edit and customise their photos on their phone before sharing them on sites like Facebook, Twitter, Tumblr, Google Plus and others. While it’s an incredible deal for the company, it’s also in my view, an excellent acquisition by Facebook and could give it a much needed boost.

 How can a two year old company be considered an excellent acquisition for $1 billion, especially as only last week it was valued at $500 million following a funding round where it secured $50 million from venture capital firms Sequoia Capital, Benchmark Capital and others? Simply because Instagram is everything Facebook is not but would like to be – its mobile, instantaneous, photo based, artsy and hip.

 Facebook is still the largest social media website but recently it’s begun to stagnate following an explosion of strong user interest for photo sharing sites like Pinterest and Instagram.  At more than double the size of Pinterest, Instagram is by far the biggest of the two and this month it passed 30 million registered users following the successful launch of its app for the android phone. While 30 million registered users is a huge number, it’s not the main reason why Facebook paid $1 billion. More importantly, Instagram also offers Facebook a way into mobile technology and ahead of rumoured interest from fierce competitor Google; Facebook was willing to pay a premium to secure the deal.

 Facebook has publicly admitted the importance of mobile technology; a technology where it has major deficiencies and is currently dominated by Apple and Google. Two months ago it held a conference called the Mobile World Congress where it stated its commitment to establish HTML5 as a mobile development standard, an area in which Instagram has a specialism. With the Instagram deal Facebook has acquired a talented team of cutting edge engineers and designers that will provide it with a strong foothold in mobile technology and allow it to build a version of Facebook in HTML5.

 In the short term the acquisition of Instagram will supply Facebook with technology that will allow it make changes to its site, such as improve the look of its new Timeline feature. However in the long term Instagram’s HTML5 expertise and technology could provide Facebook just what it needs to be the dominant social media in mobile technology, just as it has been the most dominant social media in desktop technology. If that happens then $1 billion could be viewed as a bargain.