Zucker­berg’s strat­egy is not ran­dom

Financial Mirror (Cyprus) - - FRONT PAGE -

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.

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