Although $1 billion is a huge amount of money to pay for one company, the investment is reflective of the sharing phenomenon that has taken the Internet by storm over the past year. Today, the Internet is no longer a place to visit in order to just collate and gather information, but a platform which consumers primarily use to connect with friends and peers and share ideas and content.
Last year, Mark Zuckerberg observed that online sharing is growing at an exponential rate with four billion things being shared per day. A “share” should be considered anything from an email, a cut and paste, a shortened URL, or, of course, a photo, and as sharing is fast becoming the currency of the internet, it was natural for Facebook to further embrace the phenomenon.
As it gains an estimated 27 extra million users from its new purchase, all eyes will be on how Facebook will take advantage of the increased sharing activity, as well as its access to a new pool of targets.
Equally interesting will be how Facebook deals with the major backlash it’s receiving from Instagram users. No sooner had Mark Zuckerberg published his blog post announcing the acquisition, than users were closing their accounts in droves, voicing fears that their feeds will be flooded with advertising. Understandably, this could prove to be a major headache for Facebook, but it would appear necessary if it’s to reach its valuation.
While assumptions have been made that Facebook is looking to knock out the competition, there is a more serious issue around justifying its valuation in world that is becoming increasingly mobile focused. Facebook made a staggering $4billion from advertising last year, but it has a potential valuation with the imminent IPO, of $95 billion.
It has to validate this somehow and one of the key ways to meet this astronomical figure is naturally through advertising. However, the problem facing Mr Zuckerberg is that, despite it being a colossus of the Internet, Facebook remains a walled garden – it can only reach the consumers within its perimeters, and this could prove to be highly restrictive.
Of course, its consumers can be targeted in a relevant fashion, but in order to foster engagement (and meet this valuation), it’s likely that the level of advertising will have to be intense. This is why social targeting across the entire web (which represents roughly the remaining 90% of Internet use) is more favourable. It’s not as saturated, but it remains relevant to the user in question.
The other concern for Facebook is that alternatives to Instagram do exist. Hipstamatic, Incredibooth and Via.me are just a few of the independent photo sharing sites on the market ready and waiting to attract those users looking to defect from their preferred service.
However, consumers should remember that targeting has becoming common place now and, after all, Facebook made its name through the sharing of photography. Providing Facebook doesn’t saturate its new Instagram audience with an abundance of adverts, this could well be a nifty move on its part.