What Was Facebook Thinking?

Just in case you haven’t heard: Facebook is paying $1 billion to acquire photo sharing app darling, Instagram.  Huh?  How could Zuckerberg possibly think it’s worth anywhere near that much?  All Things Digital reported that assorted VCs assessed Instagram at $500 million before funding it with $50 million in venture capital.

“If you find it odd that in one room Instagram was negotiating a billion dollar sale, while in another closing a funding deal, you’re not alone,” writes Ron Miller at Fierce Content.

But it’s not half as odd as Facebook paying twice as much for Instagram as the companies providing that funding think it’s worth.  Was somebody else bidding against Facebook?

Ron Miller continues –

Possibly, but why would Facebook want Instagram so badly as to overpay for it? That’s the real question.

According to a post from the LA Times last week on Instagram’s Android app launch, Instagram has about 30 million iOS users. CBS reported that Instagram had a million downloads in the wake of the Android release.

By most standards, that a nice little app. By Facebook’s 800 million-member community it barely rates as a blip. 30 million users? Facebook laughs at 30 million users. It’s barely worth their attention.

So it’s not the network. Is it the technology? Hardly. Instagram, beyond its social aspect, is basically a fairly unsophisticated photo touch-up app. I think Facebook could have developed some filters on its own or bought a similar company for a lot less money. After all, Facebook already has a photo sharing component. It really doesn’t need another one, certainly not one that costs that kind of money.

As GigaOm noted, Instagram doesn’t even offer the promise of income for goodness sake, as it doesn’t appear to have a dime of advertising revenue. The staff, maybe? We’re talking 20 employees here, folks.

This isn’t Google paying $1.6 billion for the promise of YouTube. This is a simple photo sharing-social network that’s not terribly sophisticated technology.

It leaves us wondering: What was Facebook thinking?  We may never know.