Facebook has given further details on the $1b Instagram acquisition. It will involve $300m in cash and $700m in stock (23m of Facebook shares estimated at nearly $30 a pop). Now, I know what you are thinking. Paying $1b for a 2-year old, funny, photo sharing app that just makes your photos look “old fashioned”, while yet to make a cent of cash, is probably too much. But, that’s the way the industry works now.
It is a sad reality that Facebook doesn’t intend to make any direct cash from the $1b purchase, but they would rather have access to all the data to target the customers better through its own ads. In this industry, you need to reach as many customers as possible and need to know as much about them, to make money.
Why Instagram makes sense for Facebook?
1. It’s all about the data. Instagram’s massive database of user data will further complement Facebook’s data that will let the advertisers target their ads more specifically. In the future, you could have object recognition technology that can understand the things on your photos and provide you ads for that. You have photos of Disneyland in your albums? Now, I will show you some ads on the latest mickey mouse toys or Universal theme park offers for your next vacation.
2.Taking out a threat. As a photo-sharing network, Instagram poses a direct threat to Facebook – the world’s largest repository for user photos. Facebook doesn’t want Instagram to go towards Twitter or Google, or grow on its own, and challenge Facebook’s monopoly in any way.
3. More mobile access. Instagram allows Facebook to have a stronger foothold in the mobile networking segment, in which Facebook has a very weak presence. Facebook’s iPhone app sucks and it could take a lesson or two from the Instagram team.
4. Attention. Get more of user’s attention. By having Instagram in its stable, Facebook will have a few more minutes of your daily time and the extra time will be used to further reinforce its brand on you and make you see extra ads in the long run.