The $1 Billion App

So when I heard the news, my first reaction was, “But…. Instagram is a free app. *raised eyebrow*” I’m sure with all the resources at Facebook’s disposal, someone could have told them to just look in the App Store (or wherever it is that fragmAndroid sufferers get their apps) and see that the app was indeed free. Most expensive app purchase in history? Yes. And no. Hey Facebook, I’ve got this winning Nigerian lottery ticket in my pocket. Interested?

I’m sure most fragmAndroid sufferers out there don’t even know that Facebook bought Instagram. They’re too busy posting pictures from Thanksgiving and Christmas dinner. Maybe they’ll catch wind of this in a couple of months.

After all the jokes that ran through my head about a $1 billion purchase for a free app, I really got to thinking about it. And you know what? $1 billion was cheap! Remember when Microsoft invested $240 million in Facebook? That was a drop in the bucket when that investment gave Facebook a $15 billion valuation. Keep in mind that Facebook has always been a free service and has only recently started to generate serious revenue via advertising. So why was $1 billion cheap? Instagram was not just a photo-sharing app. Instagram was a social networking platform/service. And it was a platform that was growing rapidly. It’s already more popular than that Google social network. What is it called? Its name honestly escapes me and I’m too lazy to actually Google it.

But I still haven’t explained why $1 billion was cheap. I’m getting there. Just think about it for a second. Why would 8 people create such a sleek, easy, and fun platform/service/app like Instagram and sell it for free to hundreds of millions of smartphone users? Because if it’s free and you KNOW that people will love it, then you’ll get users. And with enough users, you have an attractive audience for advertisers. Free content on the web is driven by ad sales which are driven by ad clicks and/or ad impressions. Instagram was either going to eventually have ads or be sold and incorporated with another platform/service. It was never going to remain free with the growth it was seeing. Never. Lets be clear, Facebook is the largest social networking platform in the world. And Facebook wants to be the one site users go to for everything. Just look at how you can do a web search right from within Facebook. The only thing Facebook can’t get around right now is YouTube. There is no alternative and Google is not going to sell that cash cow. But please believe that Facebook is looking for a way to displace YouTube as the king of video sharing on the web.

Still waiting for me to explain why $1 billion was cheap? Ok, well here you go. As Facebook continues its quest to be king of the web, it will have to fend off challengers. In the tech world, you have to be looking forward. If not, you become Myspace (or MySpace or My_____). But every now and then, you have to look back to crush an upstart. And how? You either steal their idea and implement it better or you buy them. But why $1 billion? Because to a group of young and very talented people, $1 billion is still a lot of money. More money then they would have ever made if they had kept Instagram to themselves? Who knows. But $1 billion split 8 ways is $125,000,000 and counting (with interest). One hundred and twenty-five MILLION! Do you know how much cocaine that can buy those crazy hippies? A lot. Consider one of the reasons that Facebook grew so fast in popularity. Photo-sharing. So Facebook has to protect that core part of their service. Facebook won’t be Twitter. People just don’t go there to converse in the same way. But people do share pictures on Facebook. And lots of them….when they do. If I look at my friends on Facebook who use Instagram, they are much more active on Instagram on a daily basis. I’m sure Facebook was noticing this trend before they pulled out their roll of quarters for this $1 billion purchase.

Also keep in mind that Facebook’s IPO will launch next month. Missed out on buying AAPL (Apple) at $145 (like I got in at) or cheaper? You will not want to miss getting in on Facebook. This will be the next big stock for the next 5-10 years at least. Buying a competitor for $1 billion when you’re on your way to a $100 billion valuation is chump change. It also shows that Facebook is serious about being king. And every king has a little blood on their hands. Wall Street is just salivating even more at this IPO. And the acquisition of Instagram makes Facebook an even more attractive stock. Now do you see why $1 billion was cheap?

So, Facebook. If you’re reading this, do the following things. Because honestly, of all the emotions I felt when I heard the news, happy wasn’t one of them. I just don’t enjoy using Facebook that much.

1. Keep your word. Don’t kill the Instagram app. If you do, we’ll just move to something else that you can pay another $1 billion for.

2. Please keep the ads to a minimum. We know they’re coming.

3. Don’t add complexity to such a simple and fun app/service.

4a. Get these fragmAndroid sufferers out of here, yo! They just posting pics all willy nilly.

4b. Deeply integrate Instagram into iOS and…. *shudders* fragmAndroid. Look at how Twitter is baked right into iOS5.

So what next? I’m going to start unfriending (Or is it defriend? Neither are words? Oh.) people on Facebook. I like my private Instagram profile and I just don’t want to share all my photo goodness with some of those random Facebook users. Sorry, but I don’t. You mad? Bye.

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