Is Facebook’s big Instagram purchase worth it?

Eve Troeh Apr 10, 2012

Jeremy Hobson: Facebook is making its biggest purchase yet as it prepares to go public. The company is buying the photo-sharing app Instagram for a billion dollars.

Marketplace’s Eve Troeh is here now to give us a snapshot. Good morning.

Eve Troeh: Good Morning.

Hobson: So tell us what Instagram is.

Troeh: Instagram is a photo app, basically, for your iPhone or — just added last week — your Android phone. It gives your pictures this vintage-y film look that people totally love. And here’s the big part: people love sharing those cell phone photos on sites like Twitter, Flickr, Tumblr, or… yes, Facebook.

So, it makes what you’re doing and who you’re with look cooler, but it’s a tiny company; less than 20 people work there. So, a picture’s worth a thousand words, as they say — but is Instagram really worth a billion dollars?

Hobson: Well that is the big question I’ve seen asked in the last 24 hours. Why would Facebook pay so much for this startup?

Troeh: So, Facebook pretty much owns the online social media space; but it does not own the mobile phone space.

I talked to Chris Green this morning in London. He’s a tech analyst with the Davies Murphy Group.

Chris Green: The Facebook mobile app really hasn’t engaged with users. Instagram is a potentially a route into rehabilitating that and extending the Facebook reach much more effectively.

So people love using Instagram on their phones. Some people say Facebook snapped up Instagram to keep anyone else from buying it — remember Google buying Youtube?

But Chris Green says he doesn’t think so. He thinks Facebook is showing potential investors that it’s going to get serious about this mobile business before its IPO in the next few months. He also says Instagram is about location — Facebook is hoping people geo-tag their photos, so advertisers can know exactly where they are, and they can sell them something.

Hobson: Marketplace’s Eve Troeh, thanks a lot.

Troeh: Thank you.

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