When Facebook announced in 2012 that it was buying Instagram for a whopping 1 billion dollars, many people were left astounded. Perhaps it was the fact that Instagram wasn’t even 2 years old at that time or that it had only 13 employees and absolutely zero revenue. Many experts deemed it an impulsive move on the part of Mark Zuckerburg and raised questions whether the 27-year old CEO was capable of handling a public limited company.
To the surprise of many, the same people who questioned the purchase now acknowledge it as one of the most brilliant tech acquisitions in history. Mark’s ability to foresee a trend has made Instagram a money machine for Facebook. Within just one year from 2016 to 2017, it grew its active advertisers by five times reaching 1 million from 200,000. The number of users had also grown to 600 million by the end of 2016, with two-thirds of those logging in every day to their account.
In case you are wondering, here are some things that might have helped Mark Zuckerburg in shelling out a billion dollars for a company with no revenues.
What many believe the true reason behind the heavy price tag of Instagram wasn’t technology or its members, but rather maintaining dominance in the industry. It was also the only significant photo-sharing network that Facebook could buy. While Flickr was running on fumes, Picasa, owned by Google, was impossible to acquire. The billion-dollar acquisition also seemed reasonable for Facebook’s continued dominance in photo sharing. Also, Instagram had to sell since it did not have any source of revenue and Facebook did not want to see it going to one of its competitors like Google.
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Well, how much can you grow when almost every person who is on the internet is using Facebook; not much, right? Though 30-something million Instagram users may seem like a dwarf compared to Facebook at the moment, Mark saw the potential in the photo-sharing service and gave away a billion dollars in cash and shares.
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#3. Understanding The Mobile Application World
Another reason that people have used to justify Instagram’s mighty price tag is the fact that Facebook’s mobile application, as most would say, sucked at that time, while Instagram’s was rocking with almost millions of downloads within just a few days of its release. So, according to many, this could be the major reason that the price tag did not appear to be that far-fetched.
With Instagram’s acquisition, Facebook also dropped its strategy of offering a single product or a range of products all of which ran back to the social networking website and adopted what Google had been doing for quite some time as running separate fiefdoms within the company even after acquisitions.
Instagram’s acquisition is also proving to be quite significant at this point since Facebook is facing ad load saturation, meaning it is lacking room to squeeze in advertisements without impacting user agreement. Therefore, Instagram is proving to be a major growth driver. Some experts have estimated that Facebook’s revenue through Instagram would reach nearly USD 4 billion in the year 2017 with many of them predicting the number to go beyond 6 billion. With the success of stories and the rapidly rising user base, the numbers do not appear to be a fairytale.
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