Depending on which hastily pasted-together analysis you believe, Facebook’s $1 billion acquisition Monday is reason enough to close your Instagram account, and Facebook is going to ruin Instagram. We’re not buying it, so instead we spent Monday interviewing a dozen experts for their thoughts and opinions on the deal.
All agreed that the deal is big, but only time will tell how big. In the meantime, they gave us five areas to watch, as the Instagram acquisition may very well shift how Facebook views content and serve as an acknowledgment that the Web is becoming increasingly visual.
“What’s the deal worth, by normal analysis, not pie-in-the-sky valuations? Zero! Or next to zero. But so was Youtube before Google bought it and flipped it into a money-making magnet.” – Bert Martinez
“It will take months to know what it means for Facebook. The price is eye-popping, but then, so is Facebook’s expected valuation. What’s ultimately important is, did Facebook CEO Mark Zuckerberg see this acquisition as an opportunity or a necessity?” said Brad Allen, investor relations expert at KC Associates. “The acquisition coming in front of Facebook’s IPO looks defensive. If the social media juggernaut is going to be able to justify its heady valuation, it needs to be the only rocket ride available for traders to jump on.”
While there are concerns with any acquisition of this magnitude, the people in the know seem to be cautiously optimistic that this deal will benefit three sets of stakeholders: Facebook investors, Facebook users and Instagram users. What follows is a summary of insight we received in interviews with more than a dozen social media experts and investors Monday.
Subtle Shift: Facebook Sees Future in Content Creation
The biggest hidden message in Facebook’s move Monday is acknowledging it has not paid enough attention to the content-creation side of social, according to Matthew Siegel, co-founder of Indaba Music, a musician collaboration and marketing platform.
“Before Instagram, Facebook was used exclusively to share content – it didn’t provide tools to actually create content (with the exception of typed status updates). It left creation to others – notably Zynga for games, native camera applications for photos, and record labels/Spotify for music,” Siegel said. “The Instagram acquisition signals Facebook’s recognition that it is important to have a hand in the creation of content… I may spend two minutes shooting and reshooting a photo that my wife is finally happy with, but only four seconds posting that photo to Facebook.”
Instagram Addresses Concerns About Facebook’s Mobile Strategy
Considering that Instagram secured funding just last week based on a valuation of $500 million, there are valid concerns that Facebook may be overpaying for Instagram by paying $1 billion. But there are two reasons why people who will buy shares in next month’s initial public offering of Facebook should be encouraged.
First, as we noted yesterday, it shows Facebook is willing to find new revenue streams, even as user growth slows and its advertising strategy flounders. But it also addresses one of the biggest concerns raised by potential investors: Facebook’s ability to grow in mobile.
“Instagram is the most popular mobile-only social network and the overall sixth most-used iOS app, reaching 10% of all iPhones,” said Guy Rosen, CEO of Onavo, an app download service. “Considering mobile is Facebook’s biggest challenge, as clearly laid out in their S-1, acquiring the breakout mobile-only social network is a natural move.”
Facebook is Acknowledging a Shift to the Visual Web
Michael Downing, founder and CEO of social video service Tout sees the acquisition as a reaction to services like Pinterest. Indeed, Mark Zuckerberg has previously signaled that he likes the Pinterest model of site design.
“In a general sense, this acquisition on the heels of the dramatic growth of Pinterest in the last few months is a massive reflection of just how fast the Social-Stream is becoming visual in nature, meaning evolving social engagement driven purely around visual media, not text – and just how valuable that will inevitably be to every major participant in the social media landscape,” Downing said. “This is a huge endorsement of the shift to the visual web and visual conversation in a social media framework.”
Facebook is Still Facebook, Instagram is Still Instagram
Yesterday’s headlines made a big deal about the value of the deal, but keep in mind that Facebook is projected to be worth more than $100 billion following its IPO. Jason Cieslak, managing director at branding firm Siegel+Gale, thinks it’s a good deal for both companies, but not as massive as yesterday’s flood of headlines might suggest.
“There is a cautionary tale in this space where this has been done before: Flickr being acquired by Yahoo, and even HP’s purchase of Snapfish,” Cieslak said. “I think it is safe to say that neither acquisition was a massive impact for both companies. Nice, but not transformational.”
All That Said, This Deal May be Worthless
Keep in mind that Facebook is paying $1 billion for a company with no business plan and that was valued at $15 million just one year ago. Money isn’t everything – Instagram has, after all, created a product that people love and, more importantly, encourages them to engage, create and share content.
But money is something given that Facebook will reportedly have its IPO next month. Marketing consultant Bert Martinez doesn’t expect the deal to impact Facebook’s IPO one way or another and says an Instagram merger was inevitable, given the company has been courted by both Facebook and Google in recent months.
“What’s the deal worth, by normal analysis, not pie-in-the-sky valuations? Zero! Or next to zero,” Martinez said. “But so was Youtube before Google bought it and flipped it into a money-making magnet.”
Image courtesy of Dan Frommer.
