Insta good investment
The $1b deal saving Facebook
WHEN Facebook bought Instagram for $1 billion in 2012, it seemed like a big gamble for an unproven little app.
Six years later, that little app, along with Messenger and WhatsApp, is serving as Facebook’s safety net for a future that could find its flagship service on the sidelines.
Sure, Facebook reigns in social media today and this is not likely to change soon. Still, amid the company’s seemingly endless troubles over election meddling, misinformation, privacy lapses, hacking and hate speech, the idea that Facebook may not always be on top has begun to take hold.
“Facebook could collapse,” said David Kirkpatrick, who wrote a 2010 book on Facebook’s early history.
In an interview, he said the election manipulations issue “could get so terrifying that advertisers could start to back away. That’s nowhere near happening now but it could happen.”
That is, as Facebook stops being a virtual water cooler for friendly conversation but a lair for trolls and misinformation, advertisers might find it too dangerous to showcase laundry detergent and shoes.
For now, Facebook is a social and advertising powerhouse. It has 2.23 billion users, a number that’s still growing at a healthy pace outside of the US. Wall Street analysts project Facebook’s 2018 revenue will top $US55 billion ($77.6 billion).
While the company doesn’t break out revenue among its apps, eMarketer estimates that Instagram will bring in 16 per cent of Facebook’s advertising revenue this year and 25 per cent by 2020. (The research firm does not have estimates for Messenger ads, which are still new and nascent, and WhatsApp, which doesn’t have ads yet.)
“It really speaks to the fact that advertisers love Instagram,” eMarketer analyst Debra Aho Williamson said.
“It has the appeal of being generally positive.”
In fact, Instagram is becoming the top social media service for many brands to interact with consumers, social media marketing firm Socialbakers chief executive Yuval Ben-Itzhak said.
So even though those companies were reaching a smaller audience than Facebook, these people were “engaging,” or interacting, a lot more with the advertisers, he said.
Facebook is working hard to ensure that Messenger and, later, WhatsApp become viable businesses as well. It announced plans to make its Messenger app easier to use. But the redesign makes it clear that messages from businesses – and ads – are becoming increasingly important. Such messages are now front and centre alongside messages with friends and other people.
Facebook, of course, is working hard to convince people and businesses that chatting on Messenger is more efficient than, say, emailing, calling – or tweeting at – an airline, a clothing store or even your bank.
One thing Facebook has always understood is the importance of human connections and interaction. Stan Chudnovsky, head of product for messaging at Facebook, considers one-on-one communications a “basic human need”.
A Pew Research Centre study recently found that just over half of teens use Facebook, while 72 per cent use Instagram.
“The idea has always been not to replace Facebook but to add to it,” market research firm Nineteen Insights head Nate Elliott said.
“But now that Facebook’s reputation has taken a beating, I’m sure that they see it as a very nice insurance policy.”