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Potential Facebook-Instagram impact April 16, 2012

Posted by David Card in Uncategorized.
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It’s been a week since Facebook announced its blockbuster $1 billion planned acquisition of Instagram, plenty of time to sketch out what it means for Facebook and the mobile social media environment. Don’t be too quick to assume that Facebook is abandoning its HTML5 mobile strategy in favor of apps. As a defensive move, the acquisition would lock down Facebook’s strong position in photo-sharing, leaving little room for would-be competitors, but it gives Facebook few new weapons and no new revenue opportunities.

What it means

It’s too easy to say Facebook will steer its mobile strategy towards apps and away from mobile access to HTML5 websites. Letting Instagram thrive as an app still fulfills the three strategic objectives I said Facebook needed from mobile: ubiquitous access and high frequency usage, a common cross-platform user experience, and distributed technologies that reinforce its platform. Facebook is still counting on HTML5 to minimize development fragmentation across mobile operating systems and the web. Especially since such a framework would better allow it to apply its Credits virtual currency and payments system broadly, without giving Apple, Google or Amazon a cut. Facebook is trying to encourage app and web integration with discovery services, test suites and streamlined payments. Instagram’s limited use of its own APIs could tie into Facebook’s own social services.

Instagram’s app is simple and elegant, two things you don’t hear about Facebook’s app or its mobile website. But Instagram also uses core social networking techniques that shouldn’t be overlooked. In his post on the announcement, Facebook CEO Mark Zuckerberg differentiates between sharing photos with friends and family versus sharing based on interest. And Instagram uses asymmetric following as Twitter does, rather than Facebook’s primarily two-way following system. Over time, those social networking technologies could add more to Facebook’s social graph than additional location data.

My initial reaction to the announcement was that Instagram might be worth a billion dollars to someone, but not to Facebook. I thought the two companies’ customer base probably had a lot of overlap – so that Facebook wouldn’t necessarily be gaining 30 million new users – and that thousands of Instagram photos were already stored on Facebook pages. Recent figures from AppData suggest that 22 percent of Instagram users connected their app to Facebook. That overlap will increase as Instagram gains more mainstream users: Contrary to potential backlash fears, Instagram received an additional growth spurt from the Facebook announcement on top of its first Android app. Already 96 percent of U.S. social network users, ages 18 to 34, uses Facebook, according to our GigaOM Pro 1Q2012 consumer survey, so there’s minimal Instagram headroom.

Instagram doesn’t have any revenue streams itself, so it won’t solve Facebook’s lack of mobile monetization. Facebook has resisted showing ads on its mobile app or mobile website, and seems more likely to show in-stream promotions than mobile display ads or interstitials between photos. What Instagram does give Facebook is a near dominant position in photo-sharing, both mobile and online. Both Om and investor and Hunch co-founder Chris Dixon saw Instagram as Facebook’s biggest competitive threat.

Whom it affects

Google missed out on a chance to gain social media customers and attack a core Facebook stronghold. But Instagram won’t add enough user data to Facebook’s interest graph to weaken Google’s.

Twitter reportedly tried to buy Instagram, and it would have welcomed the user growth and bulked up its own nascent ambitions in photo sharing and storage.

Apple doesn’t make many apps, but desktop photo manipulation and management is one of them. Instagram would have been an easy fit, offering lots of integration opportunities and bringing much-needed social DNA to Apple.

Yahoo’s Flickr is still a huge web repository for photos – including ones taken with Instagram – that could have benefited from a mobile user base.

Other smartphone photo apps like Hipstamatic and Eyeem don’t have the size or growth rates that Instagram has. There’s very little reason for any of the previous group of companies to buy any of them rather than building their own app.

Other social startups might now be in play if the bigger companies above decide they need social media users. But Pinterest is really the only one with size, growth and potential ease-of-monetization. And Facebook still has plenty of money and stock.

Key Takeaway

Although Facebook is still committed to an HTML5-based mobile web strategy, keep an eye on whether it shifts towards a series of single-function mobile apps as a medium-term bridge tactic.

Question of the week

Who is the biggest loser from a Facebook-Instagram match?
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