Facebook’s Recent Acquisition of Instagram: The Race for Monopoly

Posted on April 12, 2012 in Business and Economy

By Rohan Singh:

Last Monday, Facebook announced its acquisition of Instagram for a staggering $ 1 billion in cash. The announcement was greeted with a flurry of likes and shares of the original post by its CEO Mark Zuckerberg. And then the battering started, which went on only for a little while. “Is he insane”- was the first reaction; “shelling out a f**kin billion dollars for something that was last valued only at about half the price”.

But a closer scrutiny gives a viable vindication. Instagram, with its 30 million subscribers on the iOS and the Android platforms is worth the amount FB shelled out. Mathematically speaking, at a $1 Billion buyout, each Instagram user has been acquired for around $ 33.33. FB, on the other hand claims to have about 850 million active users and is being evaluated at about $100 billion (when its IPO hits the market on 16th of May) giving it a value of $118 per user. So they managed to acquire these passionate, mobile caressing, active Instagram users at a rather low sum.

That’s what FB precisely had its eyes. ACTIVE MOBILE USERS. The application is purely mobile based which is the bang-on reason for FB to acquire it. As of today, the social networking giant doesn’t make any money from its mobile subscribers. This is bound to change with it acquiring Instagram. Once its much awaited IPO hits the market, FB’s valuation may fall for a short while and that’s when Instagram will come to the rescue of its new master. Monetization on its mobile clients would be the new revenue source for the website.

Not to forget, Instagram was itself a cardinal bluff to FB’s market dominance- to the extent that this application was on its way of becoming the main way people would take and share photos, especially over mobile. Thus Zuckerberg took the opportunity of controlling the future of mobile photo sharing by purchasing the company itself. There was no alternative. Any amount is justified for buying out a threat that could slit your throat in the near future.

Moreover, it’s sole domain, until an year back- the social webspace- is being encroached upon by Google in the form of Google Plus. Another endeavor of the search engine- Google Glass may be available to netizens soon. It would mean instant clicking, tagging and sharing of photos without even moving a finger.  Now that would be perilous for FB which is built entirely around the way we share our photos. With something like Google breathing down its neck, any internet giant (or a minnow when compared to Google) may feel the heat. So, it’s all about the web dominance in the long run.

In short Mr. Zuckerberg’s weekend shopping was an answer to Google Plus, Google Glasses and Instagram itself. Smart move. You are here to stay Mr. Connector. Good Luck!