Facebook’s much talked about $1bn purchase of photo-sharing app Instagram marks the start of a new chapter for the social network as an umbrella company, writes Emma Barnett.
Mark Zuckerberg, Facebook’s 28-year old founder and chief, has found himself in a rare and enviable position. Now that his social network has been valued at $100bn, he can comfortably afford to wipe out any of its competitors with large purchase prices and lots of change to spare.
Instagram, with its 30 million users, the majority of which are young, (compared to Facebook’s ageing membership as its popularity grows amongst parents and grandparents) has been scooped up by Facebook for a mere one per cent of its market cap.
The move heralds a new era for the social network. Zuckerberg has personally pledged to not only keep the photo-sharing app open; he has said it will continue to work with other rival social networks, such as Twitter and location-sharing service Foursquare.
Using his own Facebook profile to announce the deal, which is the first of its size for the social network, Zuckerberg stressed that it would be business as usual for Instagram's 30 million users: "We need to be mindful about keeping and building on Instagram's strengths and features rather than just trying to integrate everything into Facebook.
“We plan on keeping features like the ability to post to other social networks, the ability to not share your Instagrams on Facebook if you want, and the ability to have followers and follow people separately from your friends on Facebook."
Until now, the cash rich Facebook, has shut down any acquisition it has made and folded them into social network’s product. Gowalla, a location-sharing app was duly closed after purchase this year; as was Snaptu, a social network mobile application.
However, by committing to keep Instagram alive and building on its success, Facebook has overnight become an umbrella company - owning and running more than one brand for the first time.
Like Google and Microsoft before it, Facebook has started to purchase companies which can grow its reach, appeal and crucially, its monopoly of the social web.
Google buying YouTube for $1.65bn in 2005 was a no brainer for the company wanting to own every part of search – despite the video-sharing service having cost the search giant hundreds of thousands of dollars every year since.
Facebook has been on a journey for the last few years to become a platform – upon which all social interactions of the web take place.
It has, until now, aped any of its competitors’ raison d’etre rather than buying them up. When Twitter took off, suddenly Facebook’s news feed started to resemble the microblogging platform. When Foursquare’s popularity grew, suddenly you could share your location with your Facebook friends – via a new check-in button on the Facebook mobile app.
Facebook’s purchase of Instagram, which has yet to turn a profit, has correctly prompted much talk about the inflation of the new technology bubble. However, that conversation aside, which concerns investors more than the regular social network user, it has begun its journey towards becoming a portfolio company, which will start owning and operating any competitor social website or app which can enhance Facebook and help it fulfil its mission: to make the world a more social place.