Now that we’ve had plenty of time to digest the news of Facebook buying Instagram for more than $1Billion and now that we know the whole purpose was so that Facebook could have a stronger mobile strategy going forward (looking at Facebook’s S1), it’s time to take a look at why this was actually a really good deal and what it means for you.
Many people have looked at the number of users Instagram currently has and established that Facebook paid about $30 per user. That’s an incredibly high valuation when you look at it that way. But when you look at it as a mobile strategy, it’s a totally different story. It’s all because of the mobile #trajectory.
There have been some digital laws at work for the past few decades. The most popular is Moore’s Law which states that processing efficiency doubles every 18 months (check out that graph). This is the norm, and it’s been proven to be mostly accurate since 1945 through today. While Moore’s Law was established with regards to processing efficiency you can actually apply that same law to other aspects of technology. Now, you can also apply Ray Kurweil’s concept of singularity, which talks about advancement that becomes so fast that it’s nearly instantaneous. The graph below is a look at the speed of consumer adoption for technology. Look at the near instantaneous growth we are now seeing with the smartphone versus when the telephone (the old landline version) first debuted. So one could draw a conclusion that if the smartphone is growing so quickly then so is people’s usage of smartphones and the apps and mobile web they use on said smartphones.
So the mobile world is quickly expanding even in it’s infancy. It’s moving so fast that if Facebook were to ignore it, investors would be up in arms. $1Billion only represents 1% of Facebook (as long as it does IPO at the estimated $100Billion that everyone expects). Looking at these models of trajectory and realizing that Instagram has grown to 40 million users in only 2 years, it’d be more of a risk for Facebook to let that go. I still wonder what would have happened had twitter bought Instagram, could’ve been even bigger for their growth. Instagram is the YouTube of the mobile era. Really, Facebook got a damn good deal when you take all of these thoughts into consideration.
So what? You didn’t invest in Instagram, so why does all of this matter to you? It’s proof that mobile is eating the world. Existing businesses will either be reinvented around mobile or they’ll perish. Our mobile phones of today are filled with more sensors and points of data to be shared with the world than we could have ever imagined would be possible. Why wouldn’t we all want a more mobile world?
Apple today announced another record breaking earnings this quarter. It’s all driven by mobile sales (iPhone and iPad). They sold a record breaking 35.1 million iPhones in this past quarter alone (remember it didn’t exist until 2007). In 2 years Apple sold 67 million iPads. It took 24 years to sell that many Macs, 5 years for that many iPods, and over 3 years for that many iPhones. #trajectory.