There’s been plenty of cynical talk going around about today’s news that Facebook is acquiring Instagram for $1 billion in cash and stock. One of the most salient points is the simple arithmetic on how much Facebook is paying for each of Instagram’s roughly 30 million users. With Facebook paying somewhere in the neighborhood of $33 per Instagram user, that seems fairly pricey compared to Facebook’s own valuation of roughly $120 per user.
What’s missing from that math is that Facebook users spend a huge amount of their time sharing and viewing photos. According to recent Comscore data, Facebook users are spending 17% of their time viewing photos on Facebook. Photos are incredibly important to Facebook.
Thinking of how I use Facebook and how I’ve seen others use it, I’d even make a case for the photos being a crucial part of drawing users into the remaining 83%.
Almost overnight, Instagram’s social network of photo enthusiasts gave it a solid beachhead into some 17% of Facebook’s social stronghold. Perhaps maybe even more importantly, Instagram is entirely focused on mobile (where Facebook sees its future). Maybe Instagram had no intention of ever competing head-to-head with Facebook, but I believe Instagram actually posed a greater potential threat than Google+ has yet.
Though it’s hard to fathom a $1 billion valuation for such a simple app and service, maybe that’s a reasonable price to quash potential competition to the unimaginable windfall that is Facebook. Facebook isn’t buying new users, but paying a premium to retain the union of Facebook and Instagram’s shared users and redirecting this aspect of their engagement back toward Facebook.