Sunday, April 15, 2012

The first ten million is always the hardest; Thoughts on Instagram

Last Monday saw the purchase of Instagram by Facebook for an extraordinary one billion dollars.  I was too busy to write much last week, but now that I have more time, and the news has sunk in a bit, here are some of my thoughts.

1 - The price.  It's a 'Damien Hirst' price, with no real logic behind it specifically.  Just as the shark is worth $12m because that is what someone was willing to pay for it, Instagram is worth $1bn because that's what Facebook were willing to pay.  It was valued at $500 by an investment round the week before, and the premium on that suggests to me that the founders didn't really want to sell, but Facebook really wanted it, so made them an offer they couldn't refuse.

2 - The audience.  Instagram has a very fast growing and young audience.  It's grown 10m in the last 10 days, as a result of becoming available for Android, and also the buzz around the deal.  The users are younger and funkier than Facebook's have become.  (In fact the petulance of some users cancelling their accounts showed that selling to Facebook is the new 'signing to EMI').  Oh - and One Direction fans are now using it, which can't hurt.

3 - The Growth.  With something well over 500m active smartphone users in the world (491m were shipped last year) there is little to stop a really good app growing at the rate of 1m a day or much faster.  Facebook know all about exponential growth - but for them it's slowed down.  As seen by figures from Angry Birds and Draw Something with mobile it's getting much faster.

4 - China.  As mobile grows in China and other non English speaking countries, especially countries with other character sets, pictures will become more and more powerful.  Music is also crucial for global communication, but music is more problematic; you need to buy rights to the professionally created stuff.  With pictures there's much less gap in quality between amateur user generated content and what professionals make.  Zynga got a very good deal when they bought Draw Something!

5 - The Talent.  I think that this is the most important consideration.  What Facebook bought is a team of people who are visionaries.  Two years ago they set up a company that allowed people to create on mobile, and share through other platforms, but had no website.  These are the people who understand how millions of other people will want to use mobile.  They (possibly) to mobile what Zuckerberg is to social networks, what Steve Jobs was to mobile hardware.  They are now needed to re-think how Facebook does mobile, because several other services (including Twitter) work much better on mobile.

Increasingly these people won't leave university looking for jobs, they'll set their own thing up.  & this is why the first 10m is the hardest - if you can create something now that can get to 10m users quickly, then you've cracked it.  I think we'll see a lot of acquisitions in mobile over the next few months.

Finally, I've always loved this quote from Albert Einstein:  “Imagination is more important than knowledge. For knowledge is limited to all we now know and understand, while imagination embraces the entire world, and all there ever will be to know and understand.”

(With acknowledgement to Po Bronson for the title!)

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