IN April 2012, Facebook CEO Mark Zuckerberg did the unthinkable. With the company about to begin its IPO roadshow, Zuckerberg made a surprise acquisition of a 2-year old photosharing app called Instagram.
What’s more, According to TOI, Zuckerberg shelled out $1 billion for an app that had 13 employees, zero revenue, and which most of the investors that would attend its IPO roadshow had probably never heard of.
The deal caused immediate concern. Some considered the deal a sign of Zuckerberg’s impulsive nature and questioned whether the then 27-year old founder was ready to lead a publicly-held corporation.
It might have been one of the smartest things Zuckerberg ever did. Instagram was the star of the show during Facebook’s fourth-quarter earnings report. Instagram’s contribution to Facebook’s top line is still just getting started.
But it’s starting to have an impact. Facebook COO Sheryl Sandberg noted that 98 of the top 100 Facebook advertisers now also advertise on Instagram.
The ‘cool’ factor
There’s another reason why buying Instagram was such a smart move. Internet firms can quickly lose their “cool” factor, as younger users flock to hipper, and newer services. Instagram is helping Facebook stay relevant and “cool” with the younger generation.
In it’s recent annual financial report, Facebook admitted that some younger users are “actively engaging with other products similar to, or as a substitute for, Facebook products, and we believe that some of our users have reduced their engagement with Facebook”.
Instagram buy, which seemed like folly to the rest of the world at the time was in fact a prescient analysis of a potentially game-ending weakness in the firm’s model and a $1 billion insurance policy to protect against it. In hindsight, it like an incredibly good bargain.