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Why is Instagram worth $1 billion to Facebook and Zuckerberg?

Instagram is demonstrated an iPhone Monday April 9 2012 New York. Facebook is spending $1 billibuy photo-sharing company Instagram social

Instagram is demonstrated on an iPhone Monday, April 9, 2012, in New York. Facebook is spending $1 billion to buy the photo-sharing company Instagram in the social network's largest acquisition ever. Instagram lets people apply filters to photos they snap with their mobile devices and share them with friends and strangers. (AP Photo/Karly Domb Sadof)

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Updated: May 12, 2012 8:12AM



To my credit, when I learned that Facebook had paid a billion dollars for the photo-sharing social network Instagram it only took me about 45 minutes to stop obsessing over the thought “Man, did I ever choose the wrong line of work” and move on to the serious question of the day, viz:

“Why in God’s name is Instagram worth a billion dollars to Mark Zuckerberg?”

I gave it another 45 minutes’ worth of thought. Troublingly, my best theory was that Mark Zuckerberg stood to inherit a trillion dollars from his eccentric uncle, but only if he could spend a billion dollars in less than an hour without acquiring any tangible property.

The decision actually makes more sense when you think about the size of Facebook’s war chest and the freedom that it brings. The company’s situation was similar to that of a new homeowner looking at a list of needed repairs and upgrades. It’s a manageable list and each of these tasks is well within her skill set. The most personally-satisfying way to get it all done is to do all the work herself; to be able to look at the work and say “This is the result of my ability to design, think, and plan; this is the result of my rolling up my sleeves, getting my hands dirty, and working very hard to achieve a worthy goal.”

But this homeowner also has a market cap of $135 billion. So the sensible thing is for her to just wave a magic wand (in the form of a clutch of enormous checks) and get the job done in the least amount of time with the least amount of fuss and the greatest chance of success.

(Oh, how I hope and pray that the deal concluded with Zuckerberg handing a giant novelty check to Instagram’s Kevin Systrom and Mike Krieger. And then he should have helped them into two handsome blue tailored sport jackets with the Facebook crest on the pocket, just like the presentation ceremony for the Masters Tournament winners. If I were them, I would have settled for $999,000,000 to make that photo-op happen.)

Facebook has always been the world’s largest photo sharing service. Other sites (most notably Flickr, which is owned by Yahoo!) are far, far better at the presentation and storytelling aspects of photo sharing; these points are practically nonexistent in Facebook. Alas, the feature that people care about the most is the simple social component. They just want to communicate events with their friends and family, via snapshots. Facebook’s tremendous success at this one simple task has severely devalued most other photo services.

But Facebook hasn’t had much success in translating the popularity of the webapps’ photo sharing feature into mobile devices. The huge, and nigh-immediate, success of Instagram proves how valuable the mobile experience is. They signed up 30 million users in less than two years. Instagram made photo sharing immediate and fun. I do get a bit snooty when a friend takes a gorgeous photo, snapped with their iPhone 4S’ best-in-class camera, and then deliberately makes it look like a Polaroid that’s been peeled off a wet subway floor. You know what? I’m completely wrong. People love that feature. I don’t fully understand why, but each of the hundreds of millions of photos shared on Instagram is a vote for Fun over Image Fidelity.

That’s what the people want. Facebook could have kept trying to figure out how to make mobile photo sharing frictionless, fun, and engaging...or they could have simply bought a company that figured it out two years ago. As Steve Jobs used to put it when demonstrating a simple and effective answer: “Boom. Done.”

Instagram represented merely a convenient solution to what Facebook regarded as an annoying problem. It could have represented something much, much bigger to a different company. Think about Yahoo!, which suffers from a lack of direction and is struggling to reassert its relevance. Acquiring Instagram, its apps, and its community might have been an absolutely necessary step to stabilizing the future of the whole organization. And to Google, Instagram might have represented a simple but shrewd tactical move to address (if not actually blunt) Facebook’s dominance of social networking.

So Facebook writes a check and then they never need to worry about Instagram ever again. It’s a simple way to get guns off the streets, similar to Google’s 2006 acquisition of YouTube.

A couple of people have asked me about Twitter. If Instagram could be bought for (oh, for God’s sake) a billion dollars, why wouldn’t Facebook or Google buy Twitter?

I don’t think that would make sense for any of these three companies. After six years of Tweets, Twitter has established itself as a unique carrier of information. I’d even cautiously categorize it alongside email, texting, and the Web. On that basis, the lure of monetizing a fundamental mode of communication that you own lock, stock and barrel is probably more attractive than selling out.

That said, if Twitter’s investors were to get antsy for a payout and the company indicated that they would be receptive to a suitably ridiculous offer...the offers would get pretty damned ridiculous pretty damned fast.

Acquisition is a scary concept for the Twitter community. It’s scary for anybody who uses any kind of independently-owned social network.

In the five years since I joined Twitter, I’ve built something that’s intensely valuable to me: a list of the people, companies, and media outlets that I trust. And the records of every transaction I’ve ever made through Twitter would tell me everything anybody would ever need to know about me, my interests, and my relationships. It would detail everyone I’ve ever Followed or Unfollowed. Every remark I’ve made. Every remark I’ve read that I liked enough to retweet. Every link that I found interesting enough to click through.

And a record of every transaction every Twitter user has ever made would reveal phenomenal truths about the nature of society at large, particularly if those analytics could be plugged into the broader data mining operations that are the bane of the Web and an affront to the fundamental precepts of individual privacy.

But I don’t worry about that stuff very much. I trust Twitter. I’d never trust Facebook with that kind of information; their corporate culture dictates that privacy is not a default setting. I wouldn’t trust Google with it, either. They’ve often activated a new social feature without fully thinking about its implications.

Instagram’s 30,000,000 users aren’t evacuating yet. Many are justifiably worried, though. For the past two years, they’ve been building up this detailed and valuable portfolio of connections and photos. Maybe they even joined Instagram specifically because they wanted some of the features of Facebook sharing, without most of the worries.

Annnd now it’s all the property of Facebook.

“But I’m not an Instagram user. I don’t need to worry.”

Maybe.

Do reflect on the fact that Facebook has software that can automatically identify the people in any photo and tag them for search. Also remember all of the times that Facebook has compromised users’ privacy by introducing a new feature that quietly overrode an established privacy setting.

It’s easy to overreact to the Instagram acquisition. It’s also very easy to imagine a day when every Instagram user’s photos will become part of their public Facebook streams, without their explicit consent. Then anyone searching for photos of you will learn about the year you dressed in full Lady Gaga drag for a friend’s Halloween party.

As more social apps get acquired by the same companies, the concept of opting out and keeping yourself off of the social media grid becomes increasingly laughable.



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