Facebook’s Acquisition of Instagram Alex Cardenas Analysis of Competitive Environment (2012) - Bargaining Power with Suppliers: Low: Facebook’s needs were servers and other network/computing technologies. Some suppliers, like Intel, supply a substantial volume to Facebook1. These supplies are available from many manufacturers. The high supply possibility minimizes the influence of individual suppliers on Facebook. Another supplier could be digital advertisers, but there are also high volumes of people willing to advertise on Facebook. - Threat of new entrants: Moderate: Digital services generally have low development barriers, however, significant amounts of resources and technologies are required for vast amounts of social network data. Social platforms better oriented towards the mobile landscape were emerging, threatening Facebook. - Existing rivalry among competitors: Moderate-ish: Regional social networks (Mixi, Renren, ect) competed with Facebook’s market share. No other social network came close to the 900+ million users of Facebook in 2012. - Threat of Substitute Products: Moderate-High: Facebook was primarily a social-networking site. Other types of social platforms (i.e. Social media-sharing sites) were quickly gaining popularity (Snapchat, Instagram, Tumblr, Twitch). - Bargaining power of buyers: High: The switching costs for users to go to other sites was low. Competition/substitute products weren’t as numerous as they are now, but were rapidly growing, giving more power to the consumers. Strategy and Mission - Facebook’s mission statement: Give people the power to build a community and bring the world closer together2 - Strategy: Acquire and digitally connect existing social platforms: ex. Instagram (2012) - User experience and ease of digital-interactions are at the forefront of facebook’s efforts. ● A single application/website shouldn’t and couldn’t do everything. ○ Fitting all innovative and desired methods of digital socialization into a single application was not be feasible. Phones and personal computers weren’t at the capabilities that they are at today. ○ Mark Zuckerberg (2015): “We’re building this family so we can offer unique, world-class experiences for every way that people want to share”3. ■ Due to technological advancements, the now-possible implementation of reels and instagram stories into instagram shows how the efforts towards building a “family of apps” has diminished Costs and Benefits - Costs ● ● Acquisition cost ○ Bought Instagram for 1 billion dollars (valued at 500 million at the time) Developmental costs to increase the communications amongst the “family of apps” ○ In 2020, Facebook, to try and unify users across their messaging platforms, introduced its Instagram and Messenger cross-messaging feature.4 - Benefits ● ● Increased their market share in social-media platforms, especially amongst younger users ○ 59.2% of facebook users are below the age of 35 while 70.1% of Instagram users are below the age of 35 Allowed Facebook to dominate the mobile ecosystem ○ Facebook was making little revenue from its mobile services in 2012 and did not have the mobile presence or fluidity of Instagram at the time5 How did the strategy fare? - Instagram was valued at $500 million before being acquired by Facebook for 1 billion dollars ● Today, Instagram is roughly valued at over $100 billion dollars - In 2012, Instagram had around 80 million registered users ● Today, Instagram has over 1.3 billion users on their platform - In 2012, Instagram recorded no revenues, $2.7 million dollars in losses 6 ● In 2021, Instagram made an estimated total of $47.6 billion dollars in revenue Impact on Society - Positive ● Users of the Facebook “app family” can now communicate with each other without needing all applications. People are now more digitally connected than ever. - Negative ● It can argued that this course of conduct harms competition and deprives people of the benefits of competition. The Federal Trade Commission sued Facebook in 2020 alleging that the company was illegally maintaining its social platform monopoly through years of anticompetitive conduct. The complaint alleges that Facebook has engaged in a systematic strategy—including its 2012 acquisition of up-and-coming rival Instagram—to eliminate threats to its monopoly7 Sources 1. Infotechlead.com. (n.d.). Retrieved September 21, 2022, from https://infotechlead.com/digital/facebook-and-its-main-network-suppliers-58961 2. FAQs. Meta - Resources. (n.d.). Retrieved September 21, 2022, from https://investor.fb.com/resources/default.aspx#:~:text=Meta%20Investor%20Relations%3F-,What%20is%20Meta's%20mission%20statem ent%3F,support%20and%20make%20a%20difference 3. Constine, J. (2015, March 26). Facebook finds strength as a family, not an app. TechCrunch. Retrieved September 21, 2022, from https://techcrunch.com/2015/03/25/safety-in-numbers/ 4. Instagram and Facebook Messenger: How to enable cross-platform chat feature . HT Tech. (2020, October 28). Retrieved September 21, 2022, from https://tech.hindustantimes.com/how-to/instagram-and-facebook-messenger-how-to-enable-cross-platform-chat-feature-71603866914536. html 5. Luckerson, V. (2016, April 19). Proof that Instagram was a great acquisition for Facebook. Time. Retrieved September 21, 2022, from https://time.com/4299297/instagram-facebook-revenue/ 6. Thomas, O. (n.d.). Instagram's financial report: No Revenues, $2.7 million in losses, $5 million in the Bank. Business Insider. Retrieved September 21, 2022, from https://www.businessinsider.com/instagram-finances-2012-8 7. Staff, the P. N. O., & Staff, D. P. I. P. and C. T. O. (2021, March 18). FTC sues facebook for illegal monopolization. Federal Trade Commission. Retrieved September 21, 2022, from https://www.ftc.gov/news-events/news/press-releases/2020/12/ftc-sues-facebook-illegal-monopolization
