The technology press has been buzzing with news of Facebook’s acquisition of Instagram.
The social networking giant has bought the photo sharing service for an extraordinary $1 billion – despite the fact that Instagram is less than two years old, and has never turned a profit.
Some commentators have suggested that the acquisition is an illustration of an increasingly inflated bubble surrounding the mobile internet. The purchase means that Instagram is now valued more highly than the New York Times.
It remains to be seen whether or not Facebook will recoup on its investment. But already the deal raises interesting questions about acquisitions – not just for firms the size of Facebook, but also for small businesses aiming to attract investment.
Why did Facebook buy Instagram?
Facebook considers mobile to be amongst the most significant factors in its future growth. It is betting on a wholesale shift away from desktop computers, and is envisaging a future in which we access services and share information from mobile devices.
According to TechCrunch, the Instagram acquisition represents the beginning of a new phase in the development of the web. There are suggestions that mobile payment company Square could be valued at $4 billion. The web seems to be going mobile in earnest – and Instagram, with its enviable mobile footing, can help Facebook lead the way.
But it is also worth thinking about Instagram in terms of its ability to threaten Facebook. Mark Zuckerberg presumably wants to ensure that Facebook remains the place for photo storage. Instagram, while still in its infancy, was a potential threat to this hegemony. From this perspective it makes sense for Facebook to acquire and integrate it.
What does this mean for me?
To most small business owners billion-dollar deals with Californian web giants may well sound like the stuff of fantasy. But the Instagram deal has some important lessons for businesses of every size.
• It pays to do one thing well
Instagram is successful because it does one relatively simple thing, and it does it very well. They have managed to grow very quickly with a relatively small team – and this is partly because of their willingness to stick to one idea.
• Clarity is key
There is a very clear sense of what Instagram is. The ‘elevator pitch’ truism remains useful: is you can’t explain what your business does in 30 seconds, you might need to rethink.
• People matter
Instagram has worked hard to remain approachable to its users, and to maintain a human face despite its size. This has undoubtedly worked in its favour – not least because its proposition is based on new forms of social life.
• Acquisitions don’t have to kill businesses
It is remarkably common for acquisitions to end in the death of the business that is being bought. Stories abound of companies that have been bought, had their assets stripped away, and their employees moved onto other projects. In contrast, Facebook have pledged that Instagram will remain independently managed. It remains to be seen whether or not this pledge is fulfilled, but it should not necessarily be presumed that an acquisition will mean the end of a business.
Finally, it is important to remember that acquisition is not the only option. Many business owners prefer to remain fully independent, and to grow at their own pace. If you are looking for funding but would prefer not to sell, read our business finance section for tips and guides.