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


Facebook 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.

NEXT: Facebook - A Timeline


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