Price: If you're looking at the billion, you're looking at the wrong number. It's the 1%--because of Facebook is valued at $100 billion, they just paid 1% of their market cap to acquire the only thing that looks remotely competitive to their core offering in the market. So, for all of you startups who have done a Series A at a post of $10 million, that's like offering up a whopping $100,000 to buy out a competitive threat. In other words, it was a no-brainer. In Acquisitionville, the price goes up when you know the buyer has a lot of money.
Lessons Learned: Facebook tried to squeeze Zynga in 2010, requiring exclusive use of Facebook credits for games and trying to negotiate an exclusive for Zynga games to be played on Facebook. That didn't quite work out--while Zynga does represent over 10% of Facebook's revenue, Zynga continued to grew, went public at a multi-billion dollar valuation, and just bought a significant mobile foothold with OMGPOP. By hesitating, Facebook let a monster grow right on top of it and they probably weren't going to let this happen again--especially in their core offering of photos and games. That's pretty much what most Facebook users do--they share pictures and play games. Anyone who even game near photos was going to get the wack-a-mole treatment swiftly and without hesitation.
Lack of Loyalty to Photo Sites: I still use Flickr. Why? Because I like knowing that just about all of the photos I've ever taken are in one place. I know, however, that I'm not every user. The "normals" have proven that they're totally willing to jump from place to place, scattering photos all over the web with total disregard for centralization or risk of loss. They moved from Photobucket to Facebook, never backfilled or transferred, and probably rarely ever go back to those accounts. Maybe they'll think more about it when they're older and nostalgic but, in the meantime, Instagram posed a real threat to Facebook's photo empire in the future.
Facebook's Mobile Dilemma: While there's a ton of usage of Facebook on mobile, their app has serious issues. You can do about 9 different things in it, none of them particularly well--leaving the service wide open to mobile competition. Instagram build a vastly superior mobile photo app than what you could do with Facebook's app, which was burdened by lots of other unrelated features. Splitting up functionality across different apps was only a matter of time.
Core Feature or Fad?: Lack of loyalty aside,I wonder if my kids will wonder why the photos I took in 2012 look like they were taken in the 1970's. "Dad, didn't you have better camera's by then?" "We did, but we like to pretend that we didn't." In this sense, Instagram supports a certain style of photoblogging, but it really isn't a core photo app for "mainstream" usage. Does that mean that the threat was overestimated and that Facebook is always going to be the place for "albums" and mass photo dumping--the kind of stuff that will be more important to families 25 years from now and less like an art project? Or, is the idea of the album forever dead and will we just curate, edit, and filter the one important photo of the event that matters--changing the nature of photography forever?
