Very Pinteresting, Why Facebook Paid $1 Billion For Instagram

In advance of its much ballyhooed IPO, Facebook, which historically made acquisitions of $100 million or less, bought Instagram for cash and stock approximating $1 billion. The photo sharing mobile app, launched less than two years ago, was valued at $20 million in February 2011 and $500 million as recently as last week (based upon investor funding).

So, why pay $1 billion for it and why now? Five reasons:

1. Platform. Instagram is a mobile app, and mobile represents the biggest upside for future marketing and commerce. Facebook needs more mobile features.
2. Graphics. Pictures and images rule the day online. They’re compelling content that conveys the you-are-there experience with one-click satisfaction, and then love to share.
3. Category killer. In two short years, it is by far the best known and most widely used mobile photo app. Go ahead, name two others (I’ll wait).
4. Accelerated growth — and poised for more. Instagram launched on October 6, 2010.  Two months later in December it had 1 million users. By September 2011 it grew to 10 million users, and now boasts 30 million users. And that’s with it being an iPhone only app until a few weeks ago. When its Android operating system version was finally released April 3rd of this year, it was downloaded over 1 million times in the first 12 hours. Android users effectively doubles the potential user pool. And all of this was before the hype and buzz associated with its acquisition.
5. Pinterest — or, why Instagram was worth a billion bucks to Facebook. Also launched two years ago, Pinterest is likewise driven by graphics, allowing users to pin their favorites to collection boards with sharing via social nets. Like Facebook, Pinterest has a “like” function and users can comment on content. True, Instagram features user-generated photos while Pinterest links to graphics linked to the Web, but here’s why that will change.

In its two short years of existence, Pinterest is now the #3 social network as measured by monthly user visits. That’s right, behind Facebook and Twitter but more than LinkedIn. For the month of March 2012, here are the top four:

1. Facebook: 7 billion
2. Twitter: 182 million
3. Pinterest: 104 million
4. LinkedIn: 86 million

Now, I am not saying Pinterest is a threat to overtake Facebook in overall popularity, but industry leaders are expected to have the best features and Facebook needs a graphic feature that’s very compelling and, well, pinteresting. Buying Instagram is a defensive move to retain user time spent on site now and in the future.

The pressure to remain relevant is quite a burden for an industry leader. Failure to do so could spell extinction. Just ask AOL.

Addendum:  From Muckrack.com comes this pithy comment:

The WSJ’s Dennis Berman tweeted: “Revenue-starved Instagram took just 551 days from launch to $1 billion #Facebook purchase. That equals $1.8m of wealth created each day.” And he also says: “Remember this day. 551-day-old Instagram is worth $1 billion. 116-year-old New York Times Co.: $967 million.”

Related articles

• Facebook buys Instagram for $1 Billion, pledges to keep Instagram growing and independent. (technology-headlines.com)
• Facebook and Instagram: Largest mobile-app deal ever? (gigaom.com)