Why Facebook really bought Instagram

Posted on May 1, 2012. Filed under: startups, venture capital |

NOTE: this is pure speculation, but I haven’t really heard this angle or read it anywhere, so I thought I’d take a crack (Fbook employees feel free to crush any/all of these assumptions):

A few weeks ago, I had a long talk with a smart investor and blogger about Facebook.  He expressed a concern that Facebook was losing it’s intimacy, that the user no longer had the emotional connection to Facebook’s product that was once so central to it’s experience.  He contrasted the current Fbook user experience to some smaller apps that he loved, and for sure he was right…my response, however, was that I don’t think this loss of intimacy is a problem…rather I think it is quite intentional…the reason?  Because Facebook is a piece of infrastructure, and no longer a consumer application at it’s core.  Facebook Connect and the graph have pushed the company downstack to a much more valuable and defensible position on the web…one where they are the broker of basically the entire online population’s personal and social information.  They are plumbing, a point of connection for 3rd party applications and publishers to better understand users and customize experience as well as optimize revenue outside of the Facebook application.  In Facebook’s push to this layer, they executed flawlessly…they became not just the platform, but the operating system for the social web…you cannot build a product today without connecting it to “the graph” and Facebook has the most comprehensive graph in the market.  It seemed that this infrastructural path was the future of the company, which I believe it is for sure, but then something weird happened…about a year ago, Facebook and Spotify unveiled an INCREDIBLY deep integration…all of these “connected publishers” were doing well on the platform, but then…somehow…Spotify secured this unprecedented real estate inside the Facebook application…It was the first  attempt to push back up stack to relevancy at the consumer application layer that I had seen in a very long time…why?  Why did it all of the sudden matter if users were interacting heavily inside Facebook as opposed to inside 3rd party environments?  Was it the ad revenue?  Doubt it…I think Facebook may have realized that their “graph data” was getting stale…that it didn’t matter to me anymore if my Facebook graph/friend group was current, because the consumer app was declining in value relative to individual vertical Fbook connected applications…but if only 70% of my real graph was represented in my Facebook graph than their value at the more interesting “infrastructure layer” would decline…So Spotify gave me a new reason to keep my Facebook graph current…for the first time in a long time…I started friending people again…because I wanted to listen to their music…

BUT…why did it take music to reengage me with the Facebook app…what had gone away that used to be so fulfilling?  I’ll tell you what…PHOTOS…where were all the photos in my stream…yes mixed in with an increasing amount of noise from 3rd party apps publishing to my stream (facebook, afterall, had to promise distribution to connected apps…and where better to offer hope than the stream)…but I have a theory that the avg number of photos per user was on steady decline…what’s the change?  Why did people upload less photos than before?  The answer lies in the death of the point and shoot camera.  It used to be when I took digital photos, I would do it on a Sony Cybershot or something like that, then use the desktop software that came with the camera to get the photos off the camera and onto my PC.  Once there, I could upload from my PC to the web easily, and that’s how photos got into Facebook.  But as Facebook grew, so did smartphone penetration…all of the sudden, people were taking photos on their phones and not on their point and shoots…and guess what?  They stopped downloading those photos to PC…so volume of photos going into the top of the FBook photo funnel starts to decline, and at the same time, not only are these smartphone photographers not uploading to PC…but because they were on connected devices…they started to upload directly to the cloud from their phone…and Facebook did not have a mobile UX that was oriented around photo capture and publishing…it was primarily a consumptive experience…Enter Instragram…all those photos taken with the native device, now pushed directly to the cloud, via mobile first experience optimized to steal users photos away from Fbook…and those photos never reached Facebook…So why did Facebook buy instragram…graph freshness…they need the consumer app to matter again because they can’t afford a stale graph…my guess is that we will see a Spotify-esque integration and INstagram will start repopulating Facebook’s consumer application with the the photos it was missing…Instagram = supply of photos = reengaged facebook app user = freshest most comprehensive graph on the web = MSFT like infrastructural position in the web ecosystem…and this @cdixon, is why I think MSFT is better comp that LNKD for public market in valuing Fbook…cc @om

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24 Responses to “Why Facebook really bought Instagram”

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It does make sense but it still seems strange to me that Facebook never tried to address this problem by improving their product in the first place. The Photos section is still organized by albums. Who uses albums ? It’s too much of an effort. And you feel dumb if you take just one picture and upload it in an album. They could have tried to freshen’up the Photos section and add a big “take a picture” button on their mobile app and see how this goes before buying Instagram (or with the intent of buying them cheaper…)

You know I’m a big fan of the FB as infrastructure concept but Re: comps, isn’t @cdixon’s argument that it’s easier and easier to create new graphs by leveraging the existing ones, thus diminishing the value of the latter? Does MSFT has a comparable dilemma?

Anyways, check this out: Google + is (or will soon be) the largest photo sharing website.

Why? Because all of those Android phones automatically upload your pics to your G+ account.

Do you think that it’s possible for the big G to build a social layer on top of the native android camera, or otherwise turn that asset into something meaningful? Seems like they should be looking at lightbox…

i’ll let @cdixon speak for himeself, but re: G+ that’s interesting…

brett: the assumption that people with android phones are all on G+ is kind of huge. does purchase force sign-up?

jordan, i think you are correct. i also think fb is freshening the sensationalism that is surrounding their “imminent” IPO. burning money, shows “decisive” action. i think it was way overpriced, but they have the money/share price to do the deal. the question i have is: how could this purchase hurt facebook? the risk of downside is pretty minimal, aside from setting precedent for future money burns.

Another data point to consider is ~20% of fb.com time spent is on photos, ~30% is on news feed, and 20% on profile/timeline. Fresh content into these eye ball grabbing properities adds to the need for a tap into a source of high quality, realtime photos.

Great point Jeff and great post Jordan.
In the past few weeks, my Facebook News Feed has become full of Instagram’s photos. And one of the #3 factors why people are going to Facebook is photos. Facebook started to growth very quickly after they’ve introduced photos.

For the record, I don’t think that the deal was over-priced. Not at all. I’m just surprised, as Emmanuel, that Facebook didn’t try to copy Instagram before. But building a great iPhone app is a lot of work and attention to little details, which only few gets. See Instagram’s co-founder presentation on designing for mobile apps – http://speakerdeck.com/u/mikeyk/p/secrets-to-lightning-fast-mobile-design.

I predict that the next update from Instagram will allow you to tag your FB’s friends in the pictures.

Not to mention, as Jeff said, that Facebook made the choice of HTML5 which is absolutely incompatible with a great photo experience as of today.

I like the tag prediction

I agree that Facebook is playing the long game of social infrastructure for web and mobile (hell, through desktop in there too) and will succeed if the graph data is what consumers and there for developers crave. There are some other reasons too: Sipping from a spout of high quality, mobile, realtime, geo-tagged, photos is a need for (1) graph freshness (as you call it), (2) time spent on .com property that use photos, (3) closer ties to user on mobile, (4) they don’t want to blow it like they did with music a few years ago, (5) they are late to mobile development after toying with HTML5 for too long, and (6) it’s a block against deeper Apple Twitter ties for realtime sharing of good content.

(1) You nailed in the post.

(2) Facebook.com time spent is ~20% photos, ~30% news feed, ~20% profile/timeline (comScore late ’11, can also follow up on more recent data if helpful). That is likely enough eye balls and on site revenue targeted ad opportunity to justify an acquisition outright even without the graph effects and these other points.

(3) Today, the only apps that capture data effectively are single purpose native apps. Period. Facebook has a clunky, slow all-in-one app optimized for ad hoc find and seek consumption and some alerts. They’ve broken out messages as a standalone app to combat this problem. Instagram checks off a huge need to capture photos. I agree that G+ has a shot given the auto sign on and auto upload to Google for photos but they will still fall short (see point 6 re: tons of crappy pics for smaller set of shareable pics).

(4) Depending on how sour the relationship is between Apple and Facebook after their Ping debacle (go no where social iTunes music sharing), Facebook may have been itching to get a hook into the sharing path from one of mobile’s biggest use cases. When phones were hot for music (ipod->iphone), there was interest in hooking deep into that time spent category. My guess is that’s why FB pushed the Spotify integration so deeply today so not to let it go to Twitter or risk people clustering around music without Facebook. Now that mobile cameras are good enough to ditch point-and-shoot, time spent is up in photos on mobile. It’s also the mechanism for QR codes and while not a high functioning way to direct offline to online traffic, something with the camera may be the answer. Facebook might have been or be flirting with getting into the phone game for these reasons as well.

(5) HTML5 push was a wrong bet for FB dev resources. HTML5 might be okay for medium to high quality view experience but you’re not going to wait for a photo to finish uploading while a mobile browser is open. I think iOS doesn’t give background upload permissions to the browser and you can’t easily access the pictures directory. They have to catch up here quick for native app dev. I suspect they’re redoing the app from scratch given no major pushes in the last year. They’ve shown they’re willing to work on things for a while before they release– timeline was ~1+ years internal dev.

(6) Tweet a picture from the iOS default camera has the opportunity to be a big deal if Apple wants to promote Twitter more than it’s currently doing (which is a lot!, I mean damn, Twitter has a better spot in iOS settings than Phone!) Instagram did photo taking and sharing better than the iOS native camera app (not a surprise) and I suspect Instagram captures a high portion of the high quality, shareable pictures on mobile for active users. That leaves Apple/Twitter to deal with a bunch of non-interesting photo content including tons of dupes since new phones take multiple pictures SO quickly. Instagram has the one pic you want to share, that’s all FB needs to satisfy it’s graph and facebook.com time spent needs.

Instagram is the signal in the pit of photo noise. Apple knows this is an issue since they released this find similar photos feature on their iPhoto iPad app so you can easily choose which of 3 of 4 very similar photos is the one to keep and delete the others.

Lastly:

As hardware technology decreases the time and effort to capture real life moments (photos, current location, sound, those around you, inventory, health conditions, quantified self, todos, etc.), subtle, thoughtful, human-friendly software will need to limit, filter, beautify what we capture. Everyone will want to sip from that stream.

this is all smart

I wonder and would like to get your opinions on how FB will integrate Instagram in their experience.

Because Instagram graph is public like Twitter, it’s hard to build the same type of integration they’ve done with Beluga for example, which was built only on top of FB Connect.

I think that Facebook has always wanted to get a public graph (they’ve made a lot of changes to the default privacy settings to encourage that), and they are very happy with the fact that Instagram is bringing this public Twitter for photos into the mothership.

Facebook will soon need to ship multiple apps for different purposes on iOS too. They are already doing this on Android. http://www.insidefacebook.com/2012/04/23/facebook-updates-android-app-adds-new-shortcuts-to-take-over-more-of-users-homescreens/

I think you are bang on, nice post. Glad someone thought about this a little differently.

[...] Cooper, who recently sold his company and moved out west, shares his thoughts on Why Facebook really bought Instagram. Of course, I used the headline and debated with Jordan about Facebook. In short, we disagreed more [...]

As a father of 4 kids aged 13, 11, 9 and 6 … the first 3 being girls and the last being a son … I would share a potentially different reason for the purchase. As Instagram became available, I saw my 13, 11 and 9 year old daughters leave / avoid Facebook because they wanted a place to engage with their friends in a more private environment away from the boys.

I follow my kids’ behavior online and on mobile all the time as they tell me clearly what they will and won’t use and why. In this case, Facebook was not cool to them anymore because me and my mom were on it. They wanted to go somewhere else and they wanted to be safe from prying friend requests and others that were less important to them. They also cared greatly about visual sharing rather than textual sharing like this post.

So, after this, the boys noticed … and they they too transitioned to Instagram as they wanted to be where the girls were. So, in one quick transition, an entire generation of early teens to young kids decided to leave Facebook and embrace Instagram.

IMHO, Facebook saw these numbers and realized that their future audience was potentially going to grow up without using them. While they have the aggregate numbers globally, what would happen if the 13 and younger demographic decided to leave and never come back? It would be the analogous equivalent of kids growing up without Happy Meals from McDonald’s. If your kids don’t consume the Happy Meals, then when they have their kids, their kids are likely to not go to McDonald’s and eat Happy Meals either.

And there you have it. The $1B was cheap to buy Instagram as that was the price to ensure that today’s kids keep eating the Happy Meals, even if the Happy Meals were renamed to something else. After all, Facebook owns Instagram and the brand will be secondary to the audience … both young and old.

If you want to see more about Facebook Mobile, here is my Open Letter to Mark Zuckerberg, Sheryl Sandberg and Facebook Mobile published on Business Insider on Monday … before the S-1 amendments dealing with mobile. Enjoy!

http://www.businessinsider.com/open-letter-to-mark-zuckerberg-sheryl-sandberg-and-facebook-mobile-2012-5

[...] Cooper, who not too long ago bought his company and moved out west, shares his views on Why Facebook really purchased Instagram. Of study course, I used the headline and debated with Jordan about Facebook. In brief, we [...]

[...] Cooper, who recently sold his company and moved out west, shares his thoughts on Why Facebook really bought Instagram. Of course, I used the headline and debated with Jordan about Facebook. In short, we disagreed more [...]

[...] Cooper, who recently sold his company and moved out west, shares his thoughts on Why Facebook really bought Instagram. Of course, I used the headline and debated with Jordan about Facebook. In short, we disagreed more [...]

BALONEY, they could have built their own ‘instagram’ with no more than $250k…….MZ may be a helluva GEEK, but GEEKS do not make good ceo’s! it was a stupid buy and wallstreet knows it was stupid!

Good post Jordan. You really think photos per user was on decline? You mean absolute volume- maybe yes. But I bet unique events was in rise. One photo from each of 20 events versus 20 photos from one event as part of a point and shoot batch upload.

i think the important metric is photos uploaded per user…and i think that was down

Absolute photos would drive pageviews. But returning engagement would be driven by unique events. It’s almost like UVs and PVs

but both of those increase w top line user growth…the ratio is what’s important..weather it’s events or abs photos…why do you think unique events per user wasn’t declining?

Because I think phones make upload more readily available. People upload one or two images every day or so from their phones via mobile, where usage has been huge for FB. But you’re right the high volume upload (monthly etc “our trip to disneyword,” 100 photos from “summer 2011″) have probably declined because no one syncs their cameras- or even uses cameras.

Kind of the Batch from the dailybooth guys.

[...] to the Instagram platform.  Could this be why Facebook bought them?  Here’s somebody making that argument.  If you are familiar with Instagram, it’s the ultimate killer app for Teens and what they do: [...]


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    About

    I’m a NYC based entrepreneur. I think there is one metric that can be used to measure the value of a human life and that’s impact. How did you change things? How many people did you touch? How different is the world because you lived in it and how positive was the change that you affected? (p.s. i don’t use spell check…deal with it) You can email me at Jordan.Cooper@gmail.com

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