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Instagram Bought By Facebook: Triumph Of The Echo Over The Voice

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The world is a'buzzing this morning with the big news: Facebook purchased Instagram for $1 billion. HUGE move: one of those seminal business moments that will mark a seismic shift. Hearkens back to the moment AOL bought Time Warner, or Netscape's IPO, or Google crossing the $400/share mark: all moments the landscape changed. In this case, the ramifications are many, but I want to highlight two.

The first is the title of this post: this is truly the triumph of the echo over the voice. I've recently been wrestling with the perception dilemma of a feature vs. a product/company; there is a very good argument to be made that Instagram is nothing but a feature of Facebook: just a slightly better photo sharing. $1 billion is a lot to pay for a supposed feature, right? Here's where it gets interesting: there is a steady succession of companies who you could argue have taken a feature of other companies and turned it into a full product. For example, Twitter is, for all intents and purposes, simply a standalone version of Facebook's Status Update, yet Twitter is valued upward of $7 billion. Pinterest has raised nearly $40 million to share links and photos socially, something Facebook, Tumblr, and even long-departed Delicious has offered for years. Groupon is currently trading with a $9 billion valuation, despite just offering what is a slight tweak to one of the coupon models of The Entertainment Book.

The issue here is that the perception of a company as only developing what might be compared to a feature of another platform is wrong: the feature may be simply misused or overlooked by the market; if done right, it can be a much stronger entity on it's own. Case in point is Instagram: why was a free app with a dozen employees bought for $1 billion, especially since you could do the same features with Path, Hipstamatic, and others? Simple: focus and viral adoption. Take Hipstamatic: they came first, pioneering the use of cool retro filters to your photos. However, they charged for the app, and sharing was an afterthought. Instagram is free, and the experience is fully socially integrated to automatically publish each photo not just to the typical repositories, but it overlays your social graph over the app, allowing you to make your Facebook and Twitter friends your Instagram friends, following their activity. Suddenly, Facebook and Twitter are reduced to secondary repositories and data sources for Instagram to build direct relationships between users.

The second major point here revolves around the landscape change of the app. Before today, the app was considered a component of your company; with today's Instagram purchase, it reframes the world that mobile is your company. Until a couple of weeks ago, Instagram had raised just under $8 million for their product: an app, and a free one at that. Last week, they took a whopping $40 million more, but clearly a massive payoff, one that we have never seen. Put this in perspective: companies like the ill-fated Color raised over $40 million for their app...but no one could see why. After today, the world is very different: companies can now be just an app and be ranked among the Fortune 500. Today marks the day that mobile is no longer an element of a company, but the focus...or should be.

In this case, the echo truly triumphed over the voice. Facebook, for all of their innovation, has not yet come close to a satisfying mobile experience. Their app is slow, bloated and clunky, but people put up with it because of the addictive social hooks of the service. Photo sharing was always possible; Apple baked in Twitter photo sharing into the new iOS version (rumor was Facebook was offered, as well, but the two companies could not come to financial terms); Google is pushing Picasa and Google+ integration on Android photos. Instagram wasn't even available on Android until last week, but it was like a looming tidal wave, and Facebook was smart to recognize that, even if they added cool filters to their photo sharing, which would bring them to par with the Instagram feature, buying them was a better win all the way around.

Instagram took what was considered a feature and an app and made a $1 billion company from it. Investors, take note, and companies, get focused. We're in for a sea change; ride the wave or be swept into the depths.
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