Did Facebook make the right call when it purchased Instagram? That's the question everyone has been asking themselves since the acquisition was announced last year, and at least one analyst thinks it was a bad call.
A respected industry analyst, Benedict Evans, took to his personal blog over the weekend to suggest that Facebook's acquisition of Instagram is "increasingly irrelevant." I disagree.
He argues that users don't pick one service for sharing photos, one application for sharing status updates, or one app for chat and, instead, there are competing apps that users turn to to share photos. So, ultimately, while 55 million photos are shared a day on Instagram, the 450 million shared on Snapchat or 400 million on Whatsapp seem to make the acquisition of Instagram irrelevant, even despite the social network's continued growth. "On mobile, FB will be just one of many," Evans argues.
I understand Evans's point that, perhaps, Facebook could have been better off buying a service where more photos are shared. Though he doesn't necessarily look at what Facebook's already starting to do with Instagram: creating a new platform for advertisements and a new source of mobile revenue growth. Instagram has a foundation that is untapped and perfect for ad creation, though the same wouldn't be true for WhatsApp or Snapchat even though, as Evans says, "Instagram is not, remotely, the dominant photo sharing platform on mobile." The user base is irrelevant if you can't make money off of it.
How would non-intrusive ads work on WhatsApp? And I can only imagine the nightmare sales pitch a Facebook exec would face trying to convince Ford to buy ads on a sharing service that's loaded with 12-second pictures of private parts. In other words, it doesn't really matter that users are sharing pictures on WhatsApp or on Snapchat, because they use Instagram for different reasons. They share photos on Instagram for many to see, but on Snapchat and WhatsApp for a select few. Facebook acquired the social network where sharing can be monetized better than on other platforms.
Evans argues that "people aren't using Instagram for photos, WhatsApp for text, Line for stickers," which is a fair point: people don't only use Instagram for photos. But Instagram is primarily used for photo sharing and viewing. Instagram, unlike competing services, can be used as a vehicle to sell un-intrusive ads that look natural to the social network. Facebook already has major brands on board including GE, Levi's, Lexus, Macy's, PayPal, Starwood Hotels, Ben & Jerrys, Burberry and Michael Kors.
We don't know what kind of revenue Facebook can drive from these ads, but when Facebook went public in May 2012, there were doubters who thought the social network couldn't monetize mobile. As of Q3, Facebook's mobile revenue makes up nearly half of all ad revenue. With ads just now starting to populate on Instagram, Facebook finally has a chance to make back its $1 billion investment. It really doesn't matter if Instagram has competitors, and it doesn't matter that Facebook can't acquire all of them. It comes down to what's monetizable and what isn't, and as we're starting to already see, Instagram definitely is.