Zuckerberg’s strategy is not random
Facebook founder, Mark Zuckerberg, has been accused in the past of abandoning traditional investor logic and pursuing several overly priced acquisitions. Yet, as skeptical as you may be about Silicon Valley’s tech-geek egos, there’s no denying the recent data. It turns out that Zuckerberg correctly anticipated what our mobile-loving generation wants: Instagram.
When Facebook bought Instagram for $1 bln in April 2012, the social platform which allows users to easily upload, edit and share their pictures had just 13 employees, no source of revenue and less than 50 mln users. A recipe for success? Yes, as it turns out. Its growth since 2012 has been phenomenal. Instagram now boasts 300 mln users, a greater number than Twitter’s 284 mln, and an average of 70 mln photos are shared via the site every single day. The site is now hoping to build trust by following in the footsteps of Facebook and Twitter who effectively introduced verified badges for business and celebrity accounts. It will also delete fake and spam accounts.
Of course, the platform gained huge publicity from the acquisition and the association with the Facebook brand. Yet that alone doesn’t explain the degree of popularity that the site has enjoyed. Zuckerberg’s instinct that people wanted to share photos and glimpse visually into the lives of others was clearly correct. His genius was then to integrate the two platforms in order to create a simple and intuitive user experience which would enable people to share Instagram photos with their Facebook friends. His reward is the successful monetisation of the platform, which has now grown in its own right. In October 2013 it began placing advertising in the users’ feeds, like Facebook, and this October, it debuted video ads.
Instagram’s latest update certainly should help to build the trust of stock holders, but will it be enough? Before the good news, some investors were expressing concern about a recent regulatory filing that has revealed the unprofitability of WhatsApp, another of Facebook’s controversial acquisitions. WhatsApp cost 30 times the price of Instagram and the messaging application has no clear monetisation plan.
However, this shouldn’t come as a surprise. It is important to remember that the app had an incredible 450 mln users at the time of takeover, and that the purchase was always about users over cost. Facebook was very transparent about this. Foreseeing a future two-fold increase in users at the time of the deal, Zuckerberg sought to reassure investors: “services in the world that have one billion people using them are all incredibly valuable.”
Indeed, since the WhatsApp acquisition, Facebook stock has climbed 20%. Investors need to consider the big picture. It might not be public, and there’s no telling how successful it will be, but Zuckerberg clearly has a long-term acquisition strategy. His purchases are not random. Rather than assessing the merits and costs of a single acquisition, we should be focusing on the overall potential of Facebook as a social conglomerate.