Instagram has not made any money when Facebook bought them, so how will it add to profits?
With the purchase of a large and growing following of Instagram, it makes one wonder what the strategy is for Facebook. Given that Facebook is very close to going public with their IPO, what are they considering to do with Instagram so that it can add to the bottom line of the company? Up until this point, Instagram has not made any money and the reported numbers continue to grow. While it may be difficult to believe some of the user numbers being reported by Facebook and Instagram, it is obvious they are big. Instagram reported their new Android app had 5 million downloads in the first 6 days making them ever more successful. And yet they have no revenue they can report on.
There seems to be a history of past purchases by companies who have invested large amounts of cash to acquire a photo sharing site. You can think of Google and the purchase of Picasa back in 2004. There is Yahoo and their purchase of Flickr back in 2005. Neither of these can be considered as purchases which added significantly to the bottom line. But, these are web based solutions and that is where the difference lies. Instagram is a mobile app which has deep roots in smart phone usage. The web based interface offers one very little information as to its real value.
And that may be the primary reason for Facebook to buy Instagram. Facebook already has a large following of people who post pictures on their Facebook page. But the mobile aspect of activities has been lacking and this may be exactly what they need. Instagram already has hooks into Facebook, so the purchase is not going to change anything immediately. But again, we have to go back to the question of whether Instagram is going to help the bottom line?
The best answer I can give is not exactly. It is not going to have a direct link between monetizing the product and adding revenue to Facebook. What this will do for them is deal with some of the Facebook limitations which other social media sites have been very good at. As an example, Pinterest has gained a lot of interest as a new social networking site through the use of pictures. These shared pictures has moved Pinterest up in prominence and is currently being ranked as the 3rd most popular social networking site in the US. Only Facebook and Twitter rank higher.
This may be one of the primary reasons for Facebook to buy the company to fill in some of the areas where they are lacking or less than successful with what they are currently doing. The whole idea of using pictures as a medium of communications has taken off and looks like it will do nothing but continue to grow. While Instagram is more of a photo sharing site, moving it to Facebook to use its features making it similar to what Pinterest is doing would not be that difficult.
There are a number of possible things Facebook can do with Intagram as the medium moves more from text based to images being posted. It would seem the old adage of “a picture is worth a thousand words” may really apply to the true value that Instagram brings to Facebook.