This past Monday Facebook announced it will pay cash and stock totaling one billion dollars for a company that has no revenue model. Instagram has been around for less than 24 months. It has (reportedly) 30 million users who upload more than 5 million photos a day. The number will be even larger since Instagram last week released an Android version to complement its Apple version.
30 million non-paying users reminded me of music file-sharing service Napster way back in the early 2000’s. Napster too had 30 million users (and users they were since they paid nothing to access a wide variety of music tracks). In 2001 Thomas Middlehoff then chairman and chief executive of Bertelsmann convinced his associates to rescue Napster and turn it into a subscription based service. You can read what was written in the New York Times regarding the deal in 2001 – http://nyti.ms/HujxwZ.
History has shown how that plan worked out – it didn’t. I don’t begrudge Instagram founders Kevin Systrom and Mike Krieger at all for their crafty holdout that ultimately ended up in them shaking loose a $1 billion payout from Facebook. What I cannot understand is why Mark Zuckerberg CEO of Facebook would pay such an exorbitant amount ahead of the Facebook IPO which is rumored to be in the neighborhood of $100 billion. In fact last week a new round of Instagram financing valued the company at $500 million.
Instagram has intimated that it could possibly derive revenue by allowing sponsored photos to be dropped into the stream on user screens. Or they could be paid by brands when users tap something to purchase. But at present that is all conjecture.
I read a number of unfavorable tweets regarding the deal yesterday including one that offered – ‘Today Facebook purchased Instagram. It’s also the day that I stopped using Instagram’. There appear to be many people who have a similar opinion. I also wonder that there will be copyright issues with photos ‘ownership’ and license agreement challenges. Maybe Napster founder Shawn Fanning could offer his opinion?
It’s a known fact that the majority of Facebook users are women. Instagram users also skew female but exact figures were unavailable. Is Facebook heading toward being a women’s social network? Has Facebook jumped the shark here? I guess it could all work out somehow. But for me, right now I am seeing Instagram in the same light as I saw Napster.
What do you think?