The Instagram social app fetching a whopping $1 billion in cash & stock has evoked mixed reactions from business analysts and media experts worldwide. Is this perhaps the return of silly money flow to Silicon Valley? Or is it a perfect case of panic buying, with valuations mindlessly getting pushed up in a frenzied bidding war? Skeptics want to know!
Is the valuation unjustified?
A few on other side of the fence feel the valuations are fully justified, terming it ‘massive accomplishment’ for a product that has built a loyal audience of over 30 million people enabled by social networking boom. Ari Levy of Bloomberg BusinessWeek points out that though the ‘expensive’ deal might raise concerns regarding another impending technology bubble, the quote is just about a percent of the projected valuation for the world’s biggest social-networking site’s IPO.
Mark Zuckerberg, Facebook’s visionary Chief Executive Officer, well understands the model, logistics and challenging process of establishing an audience base before generating sales. In fact, he was quoted as saying that it’s a major milestone for the company since for the first time it has acquired another company and product with so many users.
13 employees, 31 million users
Instagram has only 13 employees, up from mere four a year earlier. By February 2011, its membership had touched the 1.75 million mark, with users uploading around 290,000 photos daily. The user base almost doubled in the next three months. After a week in the highly competitive Android store, it’s already among the top- ranked free apps not belonging to Google and ranked number 3 overall, following Google voice search & maps. For record, Facebook is in eighth position. Instagram has built a user base of over 31 million users.
The success of its app in part stems from the fact a large chunk of images get ‘liked’. That sort of engagement generates the dopamine effect, prompting people to come back for more. Fancy ‘filters’ of the popular app give photos a nice vintage feel, a touch like the fabulously faded Polaroids. However, on the flip side, it has no revenue worth mentioning of. But then Facebook is not going to spend $1bn for no reason,
Explaining the rationale behind its move, Tim Weber, The BBC News website Business editor, notes the buyout is for three things: a potential rival emerging with a fast-growing user base; a potent weapon to deal with other even bigger rivals in the social networking arena; and last but not the least, a much better hook into the realm of mobile computing.
According to columnist Kyle Stock in The Wall Street Journal, Facebook’s bid is in line with the amounts investors are willing to shell out for eyeballs in today’s tech market. Combine some careful FB integration (sans antagonizing existing users with Instagram’s immense mobile appeal, and Mark Zuckerberg, one can conclude, has made a smart move. Meanwhile, diehard Instagram fans might indeed bemoan the fact that the social-media giant would end up commercializing and cluttering the app’s stripped down system of filtering and sharing personal photos.
