The number of eyebrows raised by the $1 billion price tag paid by Facebook for Instagram is perhaps as much a surprise as the price itself.   The common refrain is  “What on earth are Facebook thinking, paying so much for a tiny company without any revenues {or profits}?”  It seems that the majority of comments and articles consider the price scandalous, bubble-like.  I take a contrarian position. I think it can make sense, if viewed under certain conditions.

Why the Facebook deal makes sense

Here are my top 10 reasons why this acquisition at this price makes sense:

1. The value of the image.  Instagram is Facebook’s only response to the rise of Pinterest.  Pinterest is generating huge sticky matter and traffic.  Facebook needs a strong counter proposition.
2. Instagram is the epitome of mobile.  The app and UI is one of the most enjoyable on a smartphone.
3. Instagram is social with authenticity.  There is something very charming and “real” about Instagram, which Facebook has been losing.  The community of 30 million users is decidedly loyal and engaging.
4. Valuation.  If Facebook with 800 (now over 850) million users is valued at $100 billion then that means a Facebook subscriber is worth $117.  While Instagram is no full social media platform, maybe the $33/sub price is not so out of whack.   Who knows, but $1B may turn out to be a bargain compared to if/when Instagram were to hit 100 million subscribers.
5. Instagram is embedded in the Apple iOS… (and just launched on Android), making it potentially a trojan horse against Apple?
6. Instagram is beautifully simple.  Sounds like nothing; but, keeping Instagram so simple and yet so rich in experience is no small feat.  A few able and “simple-minded” programmers is worth a mint.
7. Competition.  Facebook would rather own Instagram than see it as part of Google (which might explain the timing considering the launch of the new Android version).  How much is that worth?
8. Instagram’s social, image and mobile combination will provide a whole new avenue of data in terms of the open and social graph.  There are bound to be enormous opportunities to monetize Instagram via the Facebook installed base.
9. This is speculative:  Instagram may have some {hidden} patents pending that we don’t know about (but I suppose we could track down if we knew how!)
10. Facebook has too much cash on its hands ($4B) and is going to need to prove to Wall Street that it knows how to spend it.  Buying “small” $5 to $50 million companies will not set Wall Street on fire.

So, do all these reasons amount to a justifiable $1 billion valuation for Instagram?  I would suggest that, if these points all align with Zuck’s viewpoint, there certainly would be good reason to shell out the big bucks.

Two Instagram resources

If you are reading this far, and have an Instagram account, you might also be interested in two valuable resources:

• how to back up or download your  Instagram photos onto your hard drive, there is a handy (and free) Instaport app.
• if you want to know how to delete your Instagram account because you don’t want Facebook to get their hands on your data, you can read this article from The Next Web.

One more new image related app…

Also, by way of other interesting tidbits, I just saw that Buffer (love that app), now offers the posting of images…. You can now upload a link or an image.  Clearly, there is a lot of interest and power in the image these days.  You can read about this new feature on the Buffer blog here.