In light of the recent Twitter IPO, Snapchat’s $3.5 billion valuation and then rejection of Zuckerberg‘s $3 billion buyout offer, it has become popular to second guess Kevin Systrom’s decision to sell Instagram for a listed price of $1 billion over 18 months ago.
The dawn of a new tech bubble has outside investors claiming that Instagram would be worth many times more now than it was then.
Instagram was a young company, and Systrom himself was only 28. After two years of gaining users, up to 30 million, the app had not generated any revenue (and still has not).
The climate a year and a half ago at the time of the sale was totally different. Despite the competition for image sharing apps, Instagram had begun to pull away from the pack with its simplicity of design, high functionality and easy to use filters, which allowed users to editorialize their images.
Facebook’s purchase of the growing app seemed like a logical, if pricey, way for Facebook to bring back wayward teens whose interest had begun to wane, and allow Facebook to strengthen its mobile presence. Purely looking at Instagram’s numbers, it has seemed to be a wise investment: the 30 million users have grown to over 150 million, and over 55 million images are posted daily.
In the larger context, however, Instagram’s growth seems less significant. Whatsapp users share about 400 million pictures per day and current tech darling Snapchat is at 350 million daily. In addition to the larger volume, Snapchat has displayed higher growth rates, skyrocketing from 200 million shared images per day in June 2013 to the 350 million by September 2013 (no new figures have been released since).
The last cited number of Snapchat users was five million, published in spring 2013, a number which is sure to have grown astronomically since. Number of shared images suggests that Snapchat offers over six times more advertising opportunities.
This, along with Snapchat’s higher growth rates, seems to fuel the huge valuation of $3.5 billion. I personally believe the ephemerality and personal nature of Snapchats peer-to-peer image messaging make it an awkward place for corporations to slide into the “peer” network to send out ads, whereas Instagram’s more profile/newsfeed oriented platform makes sense as an unobtrusive advertising platform.
Remember how annoying telemarketers are? Imagine getting a Snapchat notification, but it’s not from any of your friends; instead, it’s from McDonald’s announcing the return of the McRib Sandwich to your local golden arches.
But, investing is a gamble, and it seems that world of venture capital values the incredibly high traffic of Snapchat over the view and scroll reliability of Instagram. Additionally, Facebook’s purchase, and the further growth, of Instagram has helped increase investors’ level of comfort with social media’s viability as a means of future returns. To criticize Instagram’s sale in the context of its market is shortsighted and ignores the role of that transaction in setting the bar for future companies.
Certainly, Instagram would likely sell for much, much more now, but as Mark Cuban famously said,