There have been lots of bytes written about Facebook’s acquisition of Instagram, with the eigenvectors of sentiment pointing in roughly these directions: keep it away from Google, pick up wickedly smart engineers, build on their mobile expertise, get a rapidly growing user base at a reasonable cost per user.
The real answer (in my network-centric view of the world) is that Instagram is worth a billion dollars, a re-filed S1 and pre-roadshow signal to noise diffusion because it makes Facebook’s advertising platform more valuable through increased context. If a picture is worth a thousand words, then context about a photo is probably good for a few Gbytes in a map/reduce job.
What can you learn through Instagram? Where I take pictures. Who I share them with, who follows me and who I follow (perhaps shedding light on not just subject but style and composition). How I color-adjust the pictures provides more clues – am I nostalgic (sepia tones, black and white) or having fun (color over-saturation)? Know who is in the pictures, and where they were taken, and there’s significant weighting inferred for the edges in my page, group and friend social graphs. The data available to advertising campaign management is increasingly rich and timely — if your business depends on campaign generation, then creating richer campaign marketing data is nominally a high return investment.
I’ll be blunt: Facebook can do with Instagram what Yahoo! might have done with Flickr. It’s not about the content, it’s about what the content construction and conversation tells you.
So yeah, I can see why Facebook would spend a billion dollars on Instagram. Andy Balo (Kickstarter principal) provides some other metrics for measuring how far a billion dollars goes, but they’re all trailing indicators. An incremental $40 million in advertising revenues puts $1 billion of market cap back into a company that will be (supposedly) trading for roughly 25x annual sales post-IPO. That’s a leading indicator.
Maybe I’m being way too optimistic, but if Facebook can trawl through my Instagram photo data, then perhaps I’ll stop seeing ads that offer dental insurance to employees of a former employer.