Home Facebook’s Instagram Acquisition Not Only Makes Sense, It’s Smart

Facebook’s Instagram Acquisition Not Only Makes Sense, It’s Smart

It has been fashionable lately to do some head scratching over Facebook’s acquisition of Instagram, which we now know came just weeks before the social network released a camera app of its own that looked a lot like, well, Instagram. But there’s an argument to be made that Facebook owes no apologies to its shareholders. Maybe CEO Mark Zuckerberg’s move to buy Instagram was borderline brilliant.

Writing for TheStreet.com, Rocco Pendola compares the acquisition to a strategy once favored by big radio station owners like Clear Channel and Citadel.

“Imagine a major city with just one FM station targeting 18-to-34-year-old men with alternative music. It does well in the market, which suggests there might be room for another FM music station of the same, or similar, format that goes after the same demographic,” Pendola wrote. “Instead of sitting around to wait for a competitor to flip the switch on the same type of station, the owner of the existing station changes format on another one of its properties, introducing a new station that goes after the same 18-to-34-year-old male audience.”

In other words, Facebook is probably expecting that Instagram will cannibalize some users from its new phone app and vice versa. But it no longer matters: All of the revenue stays with Facebook, and it no longer has to figure out how to convert the 40 million people who already use and like Instagram. Meanwhile, any app maker thinking to enter the market may reconsider, as the market may be close to saturation.

“I’m surprised nobody – at least that I know of – has made this logical connection,” Pendola wrote. “It’s probably because they’ve been too busy jumping on the now cosmopolitan bandwagon of Facebook hate.”

Indeed, while the tech press is still by-and-large embracing Facebook, the financial press has quickly tied Facebook to the whipping post. The release of Facebook Camera was seen as proof positive that Zuckerberg et al were capable of building a world-changing social network but not capable of running a publicly traded company.

“Someone please explain to me why this makes sense,” Anthony DeRosa of Reuters wrote about the Facebook Camera launch. “Producing an inferior product must have cost money and certainly must have taken time to develop. Even if the app were developed before Facebook bought Instagram, it would have been less damaging for Facebook to pretend that it had never existed than to confuse the marketplace by introducing two competing products from the same company.”

Facebook is not commenting on the acquisition, as the Instagram deal has not closed. The Wall Street Journal noted that with the ongoing slump in Facebook’s share prices, the deal is now worth less than $1 billion.

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