why facebook bought instagram in $500 million?

The news about Facebook acquiring Instagram for nearly a billion
dollars in cash and stock is incredible. This was one of the most
unexpected acquisition and piece of news for many people in the
Silicon Valley as no one saw this coming. Instagram, which is
barely a three old company was valued at around $100 million a
year ago. A few months ago it was valued at nearly $300 million. A
rise of $200 million in under two years which was impressive. But,
just a few days ago, Instagram was rumored to be valued at close
to around $500 million. The rising valuation of the company was
reflective of the growing audience it has been garnering, despite
being just on the iPhone. It had reached nearly 30 million
registered users before it launched an Android app, a turbocharging
event for the company.
So what was the reason behind Mark Zuckerberg to buy Instagram at twice the valuation that professional venture
investors were putting on it? The answer is found in Zuckerberg’s own blog post:
This is an important milestone for Facebook because it’s the first time we’ve ever acquired a product
and company with so many users. We don’t plan on doing many more of these, if any at all. But
providing the best photo sharing experience is one reason why so many people love Facebook and we
knew it would be worth bringing these two companies together.
The hidden story behind this logical explanation means is that Facebook was scared and knew that it arguably had
a genuine competitor for the first time in it’s era that could not only eat its market share, but also destroy its
future prospects. The simple reason being because Facebook is essentially about photos, and Instagram had
found and attacked Facebook’s achilles heel — mobile photo sharing.
In other words, if there was any competitor that could give Zuckerberg heartburn, it was Systrom’s posse. They are
growing like mad on mobile, and Facebook’s mobile platform (including its app) is mediocre at best. Why?
Facebook is not a mobile-first company and they don’t think from the mobile-first perspective. Facebook’s
internal ideology is that of a desktop-centric Internet company.
Instagram is the exact opposite. It has created a platform built on emotion. It created not a social network,
but instead built a beautiful social platform of shared experiences.
Facebook and Instagram are two distinct companies with two distinct personalities. Instagram has what Facebook
craves – passionate community. People like Facebook. People use Facebook. People love Instagram. It is my
single most-used app. I spend an hour a day on Instagram. I have made friends based on photos they share. I
know how they feel, and how they see the world. Facebook lacks soul. Instagram is all soul and emotion.
More importantly, it cracked the code where Facebook itself failed: viral growth on mobile. From that
perspective I wonder if Kevin sold too soon, though I know it is easy for me to say. But then the road from
product and a platform to a business is long, twisted and full of potholes. Perhaps that explains why the
Instagram team decided to cash in their chips.