Facebook's instant Instagram gratification

Facebook's $1bn purchase of Instragram has satisfied the social network’s desires to capitalise on the photo sharing trend.

Facebook's $1 billion purchase of Instagram is an acknowledgement that Facebook is basically a photo sharing business. If only Kodak had realised photo sharing was the future of photography, it might have bought, or at the very least partnered with Facebook, and wouldn't now be faced with a future that consists of little more than flogging off
its patent portfolio

In announcing the deal Facebook's Mark Zuckerberg said providing the best photo sharing experience is why so many people love Facebook, and the social network wants to learn from Instagram's experience and build some of its features into its products.

It comes as iPad becomes synonymous with tablet in the same way we Google something rather than search for it, or reach for the Glad Wrap rather than the cling film.

The next big thing in social photo sharing, Pinterest, could also see its name become a verb, so rather than 'Facebook that photo' our friends will tell us to 'Pinterest it'.

Some are already saying Instagram is Facebook's Pinterest killer. This month Pinterest
reportedly updated its terms of service to eliminate the policy that gave it the right to sell its user's content.

Who wins this race will ultimately depend on which brand can most quickly gain the trust of users. What's notably missing from Instagram cofounder Kevin Systrom's blog post on the acquisition is any discussion of how the sale will affect users from a privacy perspective - will Facebook alter the use rights of the photos already uploaded,by Instagram's 30 million users?

Mark Zuckerberg said in his blog post that the group will continue to allow Instagram users to post to other social networks, and choose to not share their Instagrams on Facebook if they want. The real test will be how many of Instagram's users hang around post acquisition.

Perhaps it will all be irrelevant once the next big thing comes along. The rapid speed with which both Instagram and Pinterest have acquired users makes Facebook look like a social networking tortoise. Pinterest took just 9 months to reach the magic 10 million visitors a month threshold and Instagram has been adding about 3 million users a month.

Instagram's key point of difference is its success with the hotly contested mobile channel, which every social network realises is it's future, assuming it can be monetised.

It's easier to buy a company than transform one, and in this case Zuckerberg will be looking to heavily leverage the mobile brains trust at Instagram as Facebook scrambles to ensure it can successfully compete in a mobile world.

The Instagram sale overshadowed another major deal that happened over the weekend - AT&T's offloading of its Yellow Pages business to private-equity firm Cerberus Capital Management LP for $950 million in cash and debt.

The Yellow Pages business had still been generating $3.3 billion a year for AT&T, but revenue was declining about 30 per cent every year. Still, that's revenue Cerberus will be happy to take before switching off the life support.

It's a sobering message to Sensis' Rick Ellis - is transformation possible or will Australia's YellowPages also end up with the last of its revenue being pecked out by private equity vulture?

Likewise, will Facebook continue to identify and buy businesses that are strategic threats, or will it be leapfrogged by a faster, nimbler player that no one sees coming? That's the question investors will be attempting to ask before signing on to Facebook's looming IPO in which it is seeking to raise $5 billion

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles