Facebook's Instagram Buy: Is It a Copy of a MySpace Mistake?

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InstagramFacebook announced Monday that it was acquiring Instagram, the popular shutterbug app that enhances digital snapshots or dolls them up with throwback charm.

It's a deal reportedly worth about $1 billion, but Facebook -- flush with cash even before next month's IPO -- likely had no problem cutting the big check.

If the tale of a hot social network snapping up a popular photo-sharing site sounds familiar it's because a similar scene played out in 2007.

Deja View

It was then when MySpace -- owned by Rupert Murdoch's News Corp. (NWS) at the time -- snapped up Photobucket in what was believed to be a roughly $300 million deal. MySpace didn't need to be tipped off on Photobucket's popularity. The cloud-based service was the site that MySpace users were leaning on to share their digital photographs.

We all know how the MySpace saga turned out.

Users eventually tired of its gaudy layouts and spam-riddled friend requests. Facebook offered relief on both fronts, and News Corp. sold MySpace for a mere $35 million last year.

Is Facebook repeating MySpace's mistake?

It's Different This Time

A lot has changed in five years.

For starters, Facebook has grown to more than 845 million global users. At its peak, MySpace was occupied by fewer than 100 million unique users. In other words, Facebook has gone where no social networking website has gone before, and then some.

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The explosion in mobile computing through smartphones and iPads also makes sharing pictures more lucrative. Back in Photobucket's heyday, this was a hard niche to monetize. Folks were just using the servers to store uploads that they embedded into blogs, forums, and social sites. There were premium services for folks interested in paying for more space, but that was the extent of the model.

Instagram and the new generation of photo-friendly apps can either generate money by selling ad-free versions or serving up marketing spots whenever someone fires up the program.

Instagram is in a better place than where Photobucket was five years ago. The same can obviously be said about Facebook relative to MySpace.

A Peek Inside Zuckerberg's Bag of Tricks

Is this the start of a shopping spree ahead of next month's IPO? Don't bet on it.

"It's the first time we've ever acquired a product and company with so many users," writes Mark Zuckerberg in Facebook's blog. "We don't plan on doing many more of these, if any at all."

Facebook is fine on its own. It generated a profit of $302 million on $1.1 billion in revenue during its holiday quarter alone.
It doesn't need Instagram. Its massive user base is sharing plenty of digital photo albums. However, when the opportunity to acquire a mobile darling with well-regarded staff comes around, it's hard for Facebook to deny a friend request.

Contrary to what Zuckerberg may be saying publicly, this isn't the last major purchase for Facebook.


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Facebook's Instagram Buy: Is It a Copy of a MySpace Mistake?

Oct. 28, 2003: Mark Zuckerberg hacked into restricted areas of Harvard University's computer network to create Facemash, a website that pulled the private dormitory ID photos of students, then asked users to compare the pictures of two random students and chose which one was better looking. For the brief period before university administrators shut it down, it proved quite popular.

January 2004: Zuckerberg began to write the basic software to create a universal Harvard social directory, TheFacebook.

Jan. 11, 2004: Zuckerberg registered thefacebook.com domain. Then, on Feb. 4, TheFacebook launched at Harvard University. Mark Zuckerberg, right, and Dustin Moscovitz, co-founder, left; took a semester off in 2004 to further improve on TheFacebook website.

March 2004: Initially restricted to Harvard students, TheFacebook expanded to other colleges, including Stanford University, Dartmouth College, Columbia University and Yale University.

April 13, 2004: Zuckerberg, Dustin Moskovitz, and Eduardo Saverin formed Thefacebook.com LLC, a partnership.

June 2004: TheFacebook moved it's headquarters to Palo Alto, Calif., and received an investment of $500,000 from Peter Thiel.

June 2004: Thefacebook incorporated into a new company, and Sean Parker, a co-founder of Napster, took the job of president for the growing business.

September 2004: Facebook replaced its "User is..." prompt with a "What's on your mind?" question in the newly designed space for posting and sharing status updates called "The Wall." 

September 2004: Harvard students Cameron Winklevoss and Tyler Winklevoss of ConnectU filed a lawsuit against Zuckerberg and other Facebook founders for allegedly stealing their idea for a college social network called HarvardConnection.

July 19, 2005: Then-dominant social networking site MySpace was acquired by News Corp., spurring buzz on the Internet about the possible sale of Facebook to a larger media company.

Aug. 23, 2005: TheFacebook dropped its "The" and became Facebook. Purchase price it paid for the Facebook.com domain name: $200,000.

September 2005: Facebook added networks for high school students.  In December 2005, Facebook reached 6 million users.

2005:  Artist David Choe began painting murals at the headquarters of Facebook in exchange for company stock. Today, the shares he received are worth an estimated $200 million.

2006: A cash flow statement was leaked showing that Facebook had a net loss of $3.63 million for the 2005 fiscal year.

Sept. 26, 2006: Facebook removed its restrictions and allowed anyone 13 and older with a valid email address to join.  A news feed and a mini-feed were introduced, providing easier ways to see what your friends are up to.

May 2007: Facebook Platform launched with 65 developers and more than 85 applications.  Third-party developers quickly followed, building applications to integrate with Facebook. Games such as Farmville and Mafia Wars spread rapidly.

July 25, 2007: A federal judge gave twin brothers Cameron (left) and Tyler Winklevoss, founders of ConnectU, and Divya Narendra until Aug. 8 to flesh out the allegations in their lawsuit against Mark Zuckerberg. Those charges  included fraud, copyright infringement and misappropriation of trade secrets.

December 2007:  Facebook reached 58 million users. With the successful addition of Facebook Platform and video, growth remained strong.  Facebook charted a course toward becoming a general portal like AOL; meanwhile, the choice was made not to aim toward being acquired, as   MySpace.com, YouTube and so many other tech startups were.

June 2008: Facebook settled two lawsuits, ConnectU vs Facebook, Mark Zuckerberg et al. and intellectual property theft, Wayne Chang et al., over The Winklevoss Chang Group's Social Butterfly project. The settlements effectively had Facebook acquire ConnectU for $20 million in cash and Facebook shares valued at $45 million, based on a $15 billion company valuation.

July 2008: The first Facebook iPhone app was released.

August 2008: News broke that some employees reportedly privately sold their shares to venture capital firms at prices that gave the company an implied valuation of between $3.75 billion and $5 billion.

October 2008: Facebook set up its international headquarters in Dublin, Ireland.

February 2009: The "Like" social plug-in was added, allowing users to follow status conversations without having to say anything.  The like button was instantaneously a hit. It's initial purpose has been widely misinterpreted as a positive approval button.

August 2009: Facebook acquired FriendFeed, a real-time news aggregator.

September 2009: Facebook said that its cash flow had turned positive for the first time.

April 2010: Facebook announced the acquisition of photo-sharing service Divvyshot, and introduced Community Pages.

May 31, 2010: Quit Facebook Day was an online event where users vowed that they would quit the social network shortly after widespread criticism was received on the new privacy controls rolled out in mid-May.  Zuckerberg publicly admitted the company had "missed the mark."  An estimated 33,000 users quit the site.

June 2010: Facebook employees sold some shares on SecondMarket at prices giving the company an implied valuation of $11.5 billion

August 2010: Places launched, allowing users to share information about where they are in the real world, so friends can find each other.

Oct. 1, 2010: The Social Network, a film about the start of Facebook, was released to theaters. The film, directed by David Fincher, was met with widespread critical acclaim and won the Golden Globe and Critics Choice Best Picture for the Year. Mark Zuckerberg stated that the film is an inaccurate account of what happened.

November 2010: Facebook added features to its mobile software for Android devices. The number of users reached just short of 608 million, with mobile traffic increasing.  

December 2010:  TIME magazine named Facebook founder and CEO Mark Zuckerberg the 2010 TIME Person of the Year.

January 2011: Equity investors put $500 million into Facebook for 1% of the company, placing its implied value at $50 billion.

February 2011: Facebook added 'Civil Union,' and 'Domestic Partnership' to its Relationship Status options.

February 2011: Facebook application and content aggregator Pixable estimated that Facebook would host 100 billion photos by summer 2011.

June 2011: Facebook partnered with Skype to add video calling as well as a new group chat feature.

September 2011: Heroku joined forces with Facebook for application development using the Facebook Platform.

Sept. 22, 2011: Facebook debuted the new Timeline user interface at the F8 Convention.

October 10, 2011: Facebook launched its iPad app.

December 2011: Membership reached 845 million users.

December 2, 2011: New York Mayor Michael Bloomberg (left) Facebook Chief Operating Officer Sheryl Sandberg (center) and Sen. Charles Schumer (D-N.Y.), react during a news conference on the announcement that New York will be the center of Facebook's new engineering technology initiative.

December 22, 2011: Facebook launched the new profile user interface, Facebook Timeline.

January 24, 2012:  Facebook announced that  "Timeline" would become mandatory for all users.

Feb.  1, 2012:  Facebook filed paperwork to go public, seeking to raise $5 billion on Wall Street in the largest flotation ever by an Internet company.

March 6, 2012:  Facebook launches Messenger for Windows, which gives users of Windows 7  Facebook services without the need for a web browser.

April 9, 2012: Facebook announced that is will acquire the photo-sharing app Instagram for $1 billion USD.

May 18, 2012: Facebook founder, Chairman and CEO Mark Zuckerberg, center, rings the opening bell of the Nasdaq stock market from Facebook headquarters in Menlo Park, Calif. The social media company priced its IPO on Thursday at $38 per share, and beginning Friday regular investors will have a chance to buy shares.

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