I came across a recent article on Motley Fool that talks about Facebook’s acquisition of Instagram and how it was a positive step in the right direction for the major social player.
Many people criticized the acquisition by Facebook because Instagram at the time had no revenue driver, just a rapidly growing user base. Looking at current metrics, the acquisition is now shaping up and people are even considering it better than other big tech acquisitions including YouTube by Google.
Looking at users of Instagram before and after the acquisition, there has been a sharp increase. In March of 2012 there were 20 million users and in September of 2013 there were 160 million users. The application handles 55 million pictures a day, a huge increase now that Facebook has integrated Instagram’s application into its platform.
Over the longterm, Facebook will need to keep introducing new features to keep users engage and continue the exceptional growth it has been experiencing since the acquisition.
Advertisements much like those seen on Facebook, will be the greatest revenue driver for Instagram. With such a large and vast user base, you figure ads will be able to target individuals based on interests much like Facebook. This will help Instagram charge a premium for targeted ads. The company has already chosen a number of big brands including Adidas, Macy’s, Michael Kors and PayPal to begin monetization efforts.
According to the article, “preliminary results show Instagram is on its way to becoming an indispensable tool for digital marketers. According to CEO Kevin Systrom, over 5% of ad impressions on Instagram led to Facebook “likes,” which was a “tremendous” conversion rate considering that most ads on the Internet are ignored. ”
Facebook at the time of the acquisition was seriously criticized for buying another tech company with no revenue source and a strong user base. Since introducing ads onto the platform, things should only get better in time and Facebook might turn out to be the one laughing in the end. They are continuing to prove doubters wrong and the stock is currently at an all time high.