Billion with a B – Why Facebook Bought Instagram

Facebook bought Instagram for $1 billion. Some cry genius, while others call it insanity. If you’re not one of the 30 million people using Instagram, you are probably wondering what makes it worth that amount of money. Some common assumptions are…

It costs a ton to download. Nope. Free. You can’t even buy stuff in the app. You just use it to unlock more features.

It’s a huge company. Nope. 13 employees before the Facebook purchase.

It taps into hard to reach markets.  Yes and no. Yes because lots of “hipsters” use it—a group known for being hard to reach. But no because it’s mostly used by iPhone and Android users —you have to have a smart phone to access it. And those groups are getting less exclusive by the second.

It has a long track record of success. Actually, it just launched in Q4 2010.

So with those myths debunked, now we find out why Facebook made the purchase.

Instagram was competition. Instagram users take and share photos, share their location and interact with other users. That’s Facebook’s thing. And they were getting beat. They couldn’t beat Instagram. So they bought it. And finally, the real big reason that no one really wants to talk about…

Facebook will use Instagram to make a ton of money. Bingo. That could mean ads on your mobile screens. Keep this in mind: Facebook (and now Instagram) isn’t valuable because of its products or services—it’s valuable because of its users. And they will use their users to make money. If you’re not paying for the product, there’s a good chance you are the product.

The Los Angeles Dodgers of Major League Baseball recently sold for $2 billion. That’s 130 years of baseball tradition for just twice the amount of an entity less than two years old. This is the world we live in…But then again, the Dodgers don’t have 30 million brand ambassadors.

Guess who does?

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