Can Instagram solve Facebook's mobile problem?April 9, 2012: 5:10 PM ET
Facebook is fighting Google and Apple for mobile users. With Instagram, it gains a core of developers that have the mobile design chops Facebook has lacked.
FORTUNE -- Facebook's billion-dollar acquisition of the photo-sharing application Instagram represents a new strategy for the world's largest social network. The company is a pioneer of the so-called acq-hire, buying companies mostly for their talent. Two of founder Mark Zuckerberg's five direct reports joined Facebook when their companies were acquired: Bret Taylor, a Google veteran and co-founder of the social aggregator FriendFeed, and Sam Lessin, who founded Drop.io, a file-sharing service.
But Instagram is a different type of acquisition, and it signals a change in how Facebook's management is thinking about innovation as it prepares to become a larger and more mature public company. According to Zuckerberg's Facebook post, his company is "committed to building and growing Instagram independently." In other words, Instagram will continue to be Instagram -- in name and staff and, likely, in location -- at least for the time being. Users can post their photos to myriad social networks or choose to follow and be followed by photographers on Instagram alone, an aspect that Zuckerberg says he will not change.
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It's not so dissimilar from when Google (GOOG) paid $1.65 billion for YouTube in 2006. For years, Google ran the video site as a standalone operation many miles north of the search giant's Mountain View headquarters. It wasn't initially clear what a small video entertainment web site had to do with Google's large search business or how Google would make money off of it. It even ran a competing service, Google Video. But over time, as video has become increasingly important, YouTube has provided Google a laboratory for exploring the future of how to organize the web's information. And it has blossomed into a profitable advertising business as well.
Instagram offers Facebook a similar opportunity. As Fortune wrote in November, mobile is the next battlefront for Silicon Valley's web giants. Facebook, Google, and Apple (AAPL) are all competing to attract mobile users and make money off their actions. So far, Facebook's mobile strategy has lagged its competitors. The company's apps are buggy, slow and lack the elegance that Instagram boasts with its dead-simple photo sharing service. And, until late February when Facebook announced a plan to include ads in its news stream, the company had no coherent strategy for making money on mobile platforms.
By contrast, Instagram groks mobile platforms intuitively because it is part of a new generation of web companies that have developed for phones and tablets first. The company's small band of employees are not a group of repurposed web developers, but engineers who have designed a service for the device that lives in your palm, not on your desk. And the company has seen its growth come from the same action that fueled Facebook's early growth on the web, posting and sharing pictures. Plus: Now that Instagram has launched its Android application, it also exists as a flourishing social network without an allegiance to any one large platform, living comfortably in a Bermuda Triangle that exists between Google, Apple and Facebook itself.
Zuckerberg noted in his post that "We will try to learn from Instagram's experience to build similar features into our other products." If he is serious about learning instead of simply conquering a potential competitor, it could be a very smart play.