On the surface, that’s a huge sum for a tiny start-up that has a handful of employees and no way to make money.
But the lack of a business model rarely dampens excitement about hot tech upshots these days. As Facebook has shown, itself without ads or revenue in its early days, money goes where the users are.
Instagram lets people share photos they snap with their mobile devices. The app has filters that can make photos look as if they’ve been taken in the 1970s or on Polaroid cameras. Its users take photos of everything from their breakfast egg sandwiches to sunsets to the smiling faces of their girlfriends.
In a little more than a year, Instagram attracted a loyal and loving user base of more than 30 million people. Apple picked it as the iPhone App of the Year in 2011.
Instagram’s fans, brand recognition and its potential are difficult to put a price tag on. Yet Facebook has and can afford it. The company is preparing for an initial public offering of stock that could value it at as much as $100 billion in a few weeks. What’s $1 billion? A drop in the bucket, really.
“Facebook after this IPO is going to be in a position to be predatory. They can make sure no one steps in their way and buy anyone who gets in their way,” said Wedbush analyst Michael Pachter, who follows social media.
Buying Instagram, he added, not only eliminates a rival but gives Facebook the technology “that is gaining crazy traction.”
Facebook is paying cash and stock for San Francisco-based Instagram and hiring its dozen or so employees. The deal is expected to close by the end of June.
It’s a windfall not just for Instagram’s employees, but the venture capital firms backing the company. Last week, Sequoia Capital led an investment round that valued Instagram at $500 million, according to a person familiar with the matter.
Going by the $1 billion price tag, Facebook is paying about $33 for each Instagram user. That’s a fraction of the $118 that Facebook investors will be paying per Facebook user if the company gets its expected $100 billion valuation after going public. By that math, Mr. Pachter said, $1 billon “doesn’t sound crazy.”
Getting Instagram is a big win for Facebook as it works to harness people’s growing obsession with their mobile devices and sharing every moment of their life. The company’s own mobile application is not as easy to use as Instagram, and sharing photos can be downright clunky. Facebook’s way, noted Mr. Pachter, has always been to buy technology if it’s better than what it can build on its own.
Facebook, which is based in Menlo Park, California, said it plans to keep Instagram running independently. That’s a departure from its tendency to buy small start-ups and integrate the technology or shut them down altogether just so it can hire talented engineers and developers.
“This is an important milestone for Facebook because it’s the first time we’ve ever acquired a product and company with so many users,” CEO Mark Zuckerberg wrote on his Facebook page on Monday announcing the deal. “We don’t plan on doing many more of these, if any at all.”
“We think the fact that Instagram is connected to other services beyond Facebook is an important part of the experience,” Mr. Zuckerberg said.
The rivalry between IPL teams is spilling over to the social media platform ahead of the season five of the T20 league as they intensify campaigns to drum up support of fans through sites like Facebook and Twitter.
With the social networking sites providing the opportunity to fans to interact with their star players, teams like Delhi Daredevils, Mumbai Indians and Chennai Super Kings are leaving no stone unturned to exploit the opportunity to add more supporters.
“Social media is one of the most important tools and an integral part of any team to reach out to the fans now. We have been stagnant for the past four years but this year we have really activated it,” Delhi Daredevils Head of Marketing and Commercial Hemant Dua told PTI.
He said from just about 30,000 fans on Facebook for the past four years, Delhi Daredevils has increased it to 2,30,000 in the last few months.
“We have been holding a lot of contests for the fans, like designing the mascot for the team, and it has helped,” Dua said, adding this year three fans will be selected through a contest to travel with the team to report on the team’s off-field activities.
Similarly, Chennai Super Kings has touched over seven lakh followers on its Facebook page over the past two months from just 40,000 earlier following intensified campaign to utilise the social media platform
“What we have done is assign different roles to different sites. For instance we are using Twitterfor news related to the team, while Facebook has been used as platform for interaction.
Also we are using different activities involving fans, including contests,” India Cements general Manager Marketing Chandrabhan said. India Cements own the Chennai Super Kings. Likewise, Mumbai Indians has also kicked off ‘Players Become Friends’ campaign designed to increase the interaction between the players and the fans in the digital space.
“This year our focus is completely on digital media. We will be having a new TV commercial and ground promotions for IPL 5 but the main thrust is to capitalise on the social platform to reach out to Mumbai Indians fans and make them feel as an integral part of the team,” a Mumbai Indian spokesperson said.
Mumbai Indians have nearly 2.5 million followers on Facebook fan page ‘MI Paltan’, he said, adding the aim of the campaign is to encourage them engaging with the players rather than being mere spectators.
The team is also using personalised video messages from Mumbai Indians players, includingSachin Tendulkar and Harbhajan Singh, as part of the ‘Players Become Friends’ social media campaign that will carried out on out-of-home and radio along with TV, he added.
While the teams are reluctant to share their spendings on the social media campaigns, Dua of Delhi Daredevils said:”Our spending on digital media has definitely increased, to almost double but it is all about spending judiciously and trying to make the right connect with the fans.”