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Facebook acquires Instagram: What’s behind the bold, billion-dollar buy

If a picture is worth 1,000 words, can millions of photos taken by millions of smartphone-carrying users be worth US$1 billion? Facebook is betting they are, and its acquisition of Instagram is more than the company's biggest gamble yet on its own future. It's also a sign that the battle for social media dominance is entering a new, crucial phase where mostly mobile-enabled third party services hold the key to determining who survives and who doesn't.

Instagram may have started out as a hipster-friendly way to take and share nostalgia-tinged photos from a smartphone, but in the wake of Facebook's eye-opening offer, no one's calling it a lightweight anymore. In the 551 days since Stanford University students Mike Krieger and Kevin Systrom launched the company, Instagram has managed to create as much frenzy around sharing photos from mobile devices as Facebook did around basic social media activities eight years ago.

Originally created exclusively for Apple iOS-based devices like the iPhone and iPad, Instagram last week launched an Android app and announced it had hit 30 million users. As social media evolves beyond its status-updating, poking roots, users looking for something more interesting to do managed to find a perfect storm of social media attraction in Instagram.

Disruptive, mobile, and now captive

While the proposed deal represents Facebook's largest acquisition by dollar amount to-date, the numbers are only part of the story. The social media space is already filled with countless photo sharing apps and services, but none approaches the disruptive potential of Instagram because none integrates social media and mobility quite as elegantly.


Instagram's gimmick wasn't just allowing users to easily take and share their photos. It was defiantly mobile-centric — its website is a simple splash page with links to its App Store and Google Play download pages — with a relatively simple app that allowed users to add their own creative touch, such as Polaroid or sepia-toned themes, right from their devices. Compared to conventional mobile photo sharing apps that allowed no such on-the-go creativity, Instagram was revolutionary, so much so that Apple named it its App of the Year for 2011.

Facebook's move throws down a serious gauntlet as it continues to evolve its service offerings and avoid the fate of Myspace and Friendster, former market leaders that faded after failing to adapt to more agile competitors.It's no longer enough to build a social network that attracts tens or hundreds of millions of users. As those users integrate these services more deeply into their personal and professional lives, they expect to do more when they log on, and they expect similar experiences no matter what device they're using.

Third party services like Instagram are precisely the kind of value-add that generic networks need to keep users hooked — and drive ever higher levels of activity that in turn attract even more users and advertisers.

Google runs scared

Perhaps no competitor is more spooked by Facebook's move than Google. While Google+ has emerged as a fairly successful social media platform in its own right, it lacks the rich third party ecosystem that Facebook has managed to create around itself.

The ability of Google's social media platform to serve as the baseline for services-seeking smarthphone and tablet users is also hampered by Android's fundamental flaw: It comes in so many different flavours on so many different devices that creating one app to cover them all is next to impossible. Instagram — an iOS-only offering until just last week — grew so quickly primarily because its tiny team of 13 employees could easily add new functionality on an almost constant basis. Android developers have no such luxury.

If Facebook grew up on dorm room — and later family room — laptops, Instagram's success was firmly based on mobile devices, and although its 30 million-strong user base is a mere drop in the bucket compared to Facebook's 850 million-plus, CEO Mark Zuckerberg saw the writing on the wall: His about-to-go-public company is vulnerable to smaller, more agile, mobile-based apps and services, and it makes more sense to buy them than fight them.

Content ownership: still an issue

Not all is perfect in Instagram's world, however. Loyal users concerned about Facebook's more restrictive terms of use policy have launched a grassroots online protest against the deal. While both company's policies — which all users must agree to when setting up their respective accounts — explicitly allow them to use all uploaded content as they see fit, Instagram's policy explicitly states that users continue to own their content while Facebook's makes no such promise.

The question for Instagram users everywhere is whether their quirky darling will survive the transition. Indeed, alternative services like Pinterest might be wondering the same thing as competitors like Google and Twitter ponder their own responses to Facebook's billion-dollar challenge. However it plays out, it's becoming increasingly clear that third party developers hold ever greater power in determining where social media ends up next.

Carmi Levy is a London, Ont.-based independent technology analyst and journalist. The opinions expressed are his own.