The social networking juggernaut throws down a whopping $1 billion to acquire the photo-sharing app... even though Instagram makes no money
In a blockbuster deal, Facebook is buying Instagram, the enormously popular photo-sharing application, for $1 billion. Instagram, which lets users apply retro-style filters to photographs and then share them, is certainly one of the hottest smartphone apps on the market. Though the app has only been available for the iPhone, it attracted 30 million users in two short years; after the recent debut of its Android version, Instagram added another one million users in a mere 24 hours. But the company does not charge for its services, and has no discernible source of revenue. So what's in it for Facebook? Here, four theories:
1. Facebook immobilized its greatest threat
Facebook's biggest competitors aren't fellow tech titans Google and Twitter, says Nicholas Carlson at Business Insider. Facebook's main attraction is allowing users to share photos, but the social network is "not the easiest way to share photos of your friends and family over your phone." Instagram was killing Facebook in that respect, and Facebook couldn't let that "insurgency" fester. And now, Facebook might kill Instagram, says Laurie Segall at CNN. CEO Mark Zuckerberg insists Instagram will remain an independent entity, but Facebook "likes to scoop up hot start-ups, kill their products, and redeploy their staff on other projects." Watch out.
2. Facebook needed to break into the smartphone market
According to another theory, Facebook won't kill Instagram now that the purchase has made it a formidable player in the smartphone arena, says Evelyn M. Rusli at The New York Times. Mobile phones have always been a "weakness for the sprawling social network," and now it owns "one of the most downloaded applications on the iPhone."
3. Facebook wanted to sink Yahoo
The biggest loser in this deal is Yahoo, which owns rival photo-sharing site Flickr, says Bruce Upbin at Forbes. Facebook just redefined its place in the photo-sharing market, much the way Google did in terms of video-sharing when it upended that market by buying YouTube. By swallowing Instagram, Facebook just "put the nail further in Yahoo's coffin."
4. Facebook is strengthening itself prior to its IPO
Facebook is bolstering its offerings prior to its first stock sale, which is expected to rake in $5 billion in a few weeks, says Douglas MacMillan at Bloomberg. Furthermore, Facebook just proved to investors that it's in it for "the long haul," by showing them it has "the ability and the stomach to pull off huge seven-figure deals," says Carlson.
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