Published: 12 April, 2012
Thousands of column inches have understandably been written about Facebook's $1bn acquisition of mobile photo sharing start-up Instagram. Whether the smaller firm is worth this huge sum is hardly relevant, but comparisons with the dotcom bubble are superficial. The apparently ridiculous valuations for companies like Instagram are not being driven by over-optimistic enthusiasm for a new market, as at the turn of the century, but by paranoia and a deep fear of failure in the mobile world.
The web majors need to replicate their PC/online success across handsets and every other kind of browser-equipped device, and make revenue and profit from that shift. Facebook made it very clear in its IPO filings that it did not yet really understand how it would do that. And as it considers how to monetize rising mobile activity, it has the gnawing fear that the 'next big thing' is waiting to usurp its crown and harness specifically mobile behaviors (location and presence awareness, ad hoc contacts and so on ) more effectively.
Even Google, with its massive influence courtesy of Android, remains less confident in the mobile world about how to turn its services into gold. Many of the profits from Android are finding their way into the pockets of rivals such as Amazon (see Wireless Watch April 4 2012). The firm has stumbled in key areas such as social networking (though Google+ is making progress and has some strong mobile qualities). The newly integrated Google Play apps and content hub compares poorly in many respects with competitive offerings from Amazon and Apple, and will face a serious challenge from the Microsoft platform centered on Bing and Xbox. And every time Google does something, like Play, to strengthen its own brand and revenues, it alienates one of the Android partners on which its mobile power relies.
To retain fickle consumer affection, Facebook and Google both know they have to stay ahead of the game in user experience. That includes the actual interaction with the device and services - Google made a splash this week with its augmented reality glasses, Project Glass; Apple has had enormous impact with voice activated Siri. This also includes the processes of carrying out mobile tasks and purchasing items. Apple and Amazon are kings here, with processes which lead the user effortlessly into new applications and purchases.
Instagram will bring an element of that to Facebook, providing a more inherently mobile approach to content sharing and achieving the all-important result of tying people into a network which provides easy, almost addictive connectivity. Whether that is worth $1bn is another matter, but it is true that Facebook needs to ensure that its offering remains indispensable to a new generation of mobile users and gadgets.