One of my favorite lines (as shown below) from The Social Network (movie) was when Sean Parker said "You know what's cool - One Billion Dollars!" That line blew my mind and to think the company he was talking about now has the power to be able to purchase organizations, such as Instagram for that same amount is even more mind blowing.
The social graph today is made up of a users likes and interests, what friends they engage with, the brands they like to connect with and so on. One piece that is missing is "what" specifically someone likes. For example, I can like a specific restaurant but do you know what type of menu item I like? This acquisition does not solve that exactly but gets us one step closer to building out the social "photo" graph. Take a look around the restaurant next time and those taking pictures are not only take photos of their friends enjoying their time out but also of the food on their plate to post on Instagram, Yelp, update Facebook status, etc.
Facebook has been working at lightning speed to continue to build out the social graph and this purchase of Instagram gets them further ahead. With every significant digital acquisition I always ask the question, how is company X going to monetize that purchase to get the return they need (e.g. 4x, etc.)? At a StringCan team lunch today we got into a debate how that kind of return on a $1 billion purchase of Instagram is even possible and why would Facebook even want to make that kind of investment. Personally I saw it as a major opportunity and here were my four reasons why Facebook made this move to purchase Instagram:
- Mobile Developers - Facebook is buying a powerful mobile development team. Facebook is well known to make purchases to gain access to brilliant programmers but one area they have been lacking is in their mobile team. Instagram programmers clearly understand how to build a user friendly and scalable mobile platform based on their quick success to over 30 million users.
- Building Out The Social Graph - photos and videos are a key part of the social experience and Facebook needs to complete the social graph by truly understanding what users interests are. Through the acquisition of Instagram Facebook will now really understand what kind of photos you "like."
- Improve Advertising Filters - Sure, Facebook is learning a ton on what you like but imagine the possibility of going into an Irish Bar and posting a photo of a pint of Guinness (my favorite beer). Move onto Facebook or another partner site and Stout beer companies can leverage that data to advertise to you.
- Geographic Targeting - Today we are constantly bombarded with advertising but to make matters worse those brands are often not geographically relevant or even time sensitive. Through this purchase Facebook will significantly be able to tap into the geographic presence of their user base. One of the most popular uses for mobile is to take Photos and tying that into a user will allow Facebook to target advertising at an increased rate of relevancy and timeliness.
Above are just 4 of our initial ideas and would love to hear what you think? How do you feel about this acquisition of Instagram?