At first I was like…WTF…1 billion dollars. That seems outrageous for a 7 member startup that has $0 revenue. I even posted my initial reaction on Twitter.
So with $0 in revenue you can sell for $1 Billion dollars. We live in interesting times.— Sahil Parikh (@sahilparikh) April 9, 2012
But, then I started to think about this.
My initial question was why didn’t Facebook spend less than $10 million (which is still a lot) to revamp (speed up, single-step upload etc.) the part of their mobile app that did photo-sharing. They don’t have a traffic/user problem since a majority of the 30 million Instragram users probably are also Facebook users. So, if they fix their app experience then people might start sharing more photos and they could do away with the Instagram aquisition.
You know what, I am sure they thought about this.
Then came the question of the whopping $1 billion. At first the number seems outrageous. But if you are Facebook valued at $100 billion dollars and waiting to go IPO then this is chump change. Especially, when Facebook would probably skyrocket to $150 billion within the first month going IPO, $1 billion is not much.
So, why did they buy?
To please investors, Facebook has to do well on mobiles (I have read that Facebook is not growing as fast as they should) and Instagram was their closest competition (imagine Facebook without photos!). Instagram had built a strong brand and a very loyal fan following of 30 million users in a year - that is no joke! Their app was not just a photo sharing app. It had soul and brand loyalty. That in itself is worth a lot to Facebook. Besides, their Android app was downloaded 1 million times in 24 hours. If Facebook didn’t go for the kill then someone (Google?) might have beaten them to the punch. It is a high stakes pressure game when you are Facebook, Google or Twitter. Or, it’s all about having the right connections.
Kevin Systrom (founder of Instagram) has been around and well connected…
Here is an excerpt from TechCrunch:
Both Systrom and Krieger graduated from Stanford and were a part of the Mayfield Fellows Program – a joint program between the Stanford Technology Ventures Program and the Mayfield Fund. Most recently, Systrom was working at NextStop (recently acquired by Facebook) while Krieger was at Meebo. Before NextStop, Systrom spent a couple of years at Google, and before that he was an intern at Odeo — the company that eventually stepped aside to give birth to Twitter. Systrom noted he actually shared a desk with Twitter creator Jack Dorsey back in the day, and that Dorsey has been very helpful with Instagram/Burbn.”
And if it wasn’t for the iPhone, Instagram would never happen. Everyone, say “Thank you Apple”.