Both Om Malik and Robert Scoble make interesting points, Facebook paid double for what many considered Instagram to be worth and Facebook desperately needs help with mobile devices.
From Om Malik:
A few days ago Instagram was rumored to be valued at $500 million. A few months ago it was $300 million. Its last round — just a year ago – valued the company at $100 million.
The rising valuation of the company was reflective of the growing audience it has been garnering, despite being just on the iPhone. It had reached nearly 30 million registered users before it launched an Android app.
So the question is: Why did Mark Zuckerberg buy Instagram at twice the valuation that professional venture investors were putting on it?
From Zuckerberg’s post on Facebook:
This is an important milestone for Facebook because it’s the first time we’ve ever acquired a product and company with so many users. We don’t plan on doing many more of these, if any at all. But providing the best photo sharing experience is one reason why so many people love Facebook and we knew it would be worth bringing these two companies together.
My translation: Facebook was scared shitless and knew that for first time in its life it arguably had a competitor that could not only eat its lunch, but also destroy its future prospects. Why? Because Facebook is essentially about photos, and Instagram had found and attacked Facebook’s achilles heel — mobile photo sharing.
From Robert Scoble:
Facebook has a problem. After its IPO completes it needs many quarters of strong revenue and profit growth to report to convince investors to stay put and convince new ones to buy the stock.
Zuckerberg is aiming at turning the $80 to $100 billion valuation that will happen at IPO into a $500 billion to $1 trillion company. How will he do that?
Look at mobile.
Today Facebook has NO revenues from mobile. None. That’s amazing, since so many people, hundreds of millions of us, use Facebook on mobile clients.
That will change very quickly after the IPO. Instagram will play a huge role here, plus Facebook gets a very talented mobile development team that has built world-leading mobile apps on iOS and Android (which got a million users in its first day).