Why would you pay a billion dollars for a lens filter? That’s the question being posed right now in the wake of Facebook’s recent $1 billion acquisition of Instagram. For those of you unfamiliar with Instagram, it’s a social network that allows users to upload pictures they have taken using relatively unique lens filters, that make pictures look as though they were taken a quarter century ago. While this might sound like moving backwards, it really does allow its users to became relatively proficient amateur photographers. Instagram has a huge number of users, approaching 10 million, and as they’ve grown to that size in an incredibly short period of time (2 years), it seems like a good business for Facebook to buy, except that they have never generated a single dollar of revenue.
So why the purchase? Well, venture capitalists around the world have begun speculation on a variety of theories as to why they’ve done this. Perhaps Facebook has finally realized that they can’t simulate the sort of natural evolution that companies Ike Instagram seems to represent. In the past, Facebook has looked at companies like this and said “if 13 employees can build this, we can too”. For the most part, they failed in those endeavors because they didn’t understand that you can’t recreate a phenomenon using a formula. So maybe they’ve finally figured out that if you can’t beat ’em, buy ’em? But I don’t think that’s it.