Here’s why Facebook’s $1 billion Instagram acquisition was smart.
While Facebook owns photo-sharing on the Web, it had an open flank on mobile, thanks to in part to its slow, poorly-designed HTML5 apps.
Instagram was exploiting this flank, reaching 35 million users in under two years.
When Instagram raised $50 million, it sent a clear message to Facebook that it was not going to have to worry about slowing down user growth for the sake of revenues any time soon.
Meanwhile, Mary Meeker says mobile Internet usage is going to pass desktop sometime in 2015.
Facebook spotted this threat and eliminated spending a mere 1% of its $100 billion market cap.
It was a move weaker Internet giants failed to pull off in their past, leading to disaster.
Yahoo fits this bill in particular. It could have purchased Google for $5 billion and Facebook for $1 billion. Today, Google is worth $200 billion and Yahoo is just under $20 billion.
All this logic, however, has failed to convince some Web 1.0 veterans that Facebook did anything this week but pull a move from Yahoo’s 1999 playbook, when it bought Geocities for $3.5 billion and Broadcast.com for close to $6 billion.
So here’s a stat you can use to make those people shush.
Instagram has 35 million users. When Yahoo bought Geocities, it had just more than 4 million. Instagram cost Facebook somewhere around $30 per user. Geocities cost Yahoo a stunning $830 per user.
Broadcast.com was also a technology purchase, so the comparison to Instagram isn’t completely fair (although Instagram’s mobile app is superior to Facebook’s), but it’s still worth pointing out that Yahoo paid $10,000 per user of that service.
Jay Yarow, citing a great spreadsheet from Wired.com, lays all this out in a chart you should send to your Insta-sceptical friends.