Last week, when news about Facebook acquiring the start-up photo-sharing app Instagram for a whopping $1 billion surfaced, the digital world was abuzz with frantic activity and comments. While the investors and market watchers got busy analysing the valuation of Instagram in the wake of the deal, others talked about how Facebook’s appetite to gobble up players had increased over the years.
Scratch the surface a little a bit and one can see that Facebook was not just trying to net the 30-million strong user base of Instagram, but was rather making a strategic move to keep competitors (read Google) at bay. As Gartner's principal research analyst (India) Asheesh Raina puts it,"Facebook paid a premium, as it wanted to keep Instagram out of the hands of the competitors."
Though an eye-popping $1 billion may sound too much a price for protecting its turf from a potential threat, it is nowhere close to what Google paid ($12 billion) last year to Motorola Mobility to protect its mobile franchise. Or, when Microsoft shelled out $8.5 billion to acquire Skype. Google acquired Motorola Mobility to protect its popular Android mobile operating system from Apple and Microsoft’s anti-competitive threats to its patent portfolio.
Analysts however believe there’s another compelling reason why Facebook spent big on the acquisition. As research firm Forrester's CEO George Colony wrote, Facebook is too web-centric: "App internet poses mortal danger for any player that remains too web-centric. It will enable companies to directly link with their customers."
The acquisition of Instagram puts Facebook in a better position in the app internet market and perhaps becomes a template for how Facebook will expand its model into the new high engagement architecture, Colony added. Without Facebook's own app presence, "Apple, Google, Amazon, (and potentially Microsoft) ecosystems can become too powerful, blocking the Facebook's growth and presence," he wrote.
Instagram, a free photo sharing programme, was launched in October 2010 by Kevin Systrom. It allows users to take photos and apply digital filters and effects, before sharing them on social networking sites.
|WHY INDIA IS IMPORTANT FOR GOOGLE+ AND FACEBOOK
|* Smartphone penetration in India is expected to rise from four per cent in 2009 to 15 per cent in 2013
|* There are over 100 million internet subscribers in India, of which 60 million users actively use social media
|* About 41 per cent of Indians access content on the internet only through their cell phones
|* About 77 per cent of Indians have an average of 30 apps on their phones. This makes them the largest users of apps worldwide
|* 80 per cent of Indians spend more than 15 minutes a day on social media
|Source: Appcot / Neilsen Wire
An article in Fortune magazine in November suggested how the mobile is going to be the next battlefront for Silicon Valley's web giants. Facebook, Google, and Apple are all competing to attract mobile users and make money off their actions. "Google may also find ways to build many Google+ features right into Android phones and tablets, making it harder for rivals to compete. That last point is not lost on (Mark) Zuckerberg. It prompted him to seek closer ties with Google's biggest rival in mobile — Apple," the Fortune article said.
In India, mobile advertising is all set to touch Rs 144 crore by 2013. In March, the market was pegged at Rs 105 crore, according to the findings of Internet and Mobile Association of India (IAMAI). Raina feels Facebook is aware that its strength lies in easy interface, photo-tagging and sharing capabilities. Instagram strengthens its presence in the space. “More, it gives them access to mobile devices and helps users instantly edit, upload and share photos through their devices," he says.
In the last few months, Google has also upped the ante in the social networking space with Google+. Google realised they needed a service to match the likes of Facebook and could do much more than just being a search engine. Last week, Google’s iconic founder Larry Page proudly announced that Google+, launched in June 2011, has been able to garner 100 million users. With almost eight years in business, Facebook has over 845 million users worldwide, including 46 million users from India alone.
Social networking sites are a better advertising platform than ordinary websites. Whenever a user signs up for an account on these social media services, they create a profile. Through this profile, the web giants are able to track information about the user's preferences, likes and dislikes, interests and hobbies, along with basic demographic details. This enables these sites to target users with specific advertising and promotional messages, and, in turn, charge advertisers for providing this 'insider's view'.
Both Facebook and Google would ideally want to see an individual maintaining a single social media identity. However, analysts feel the battle has now graduated from adding new users to keeping them hooked. "The biggest challenge for both Google and Facebook is to build even greater 'stickiness' on the already high, cult-like brand loyalty enjoyed by their social media channels," says Faisal Kawoosa, senior manager, Semiconductor & Electronics Practice, CyberMedia Research.
On this front, Facebook enjoys an edge over Google+. According to research firm ComScore, the average time spent by Americans on Facebook was about 7.5 hours in January, whereas the average time spent on Google+ was only 3.3 minutes. For advertisers, this is the figure that acts as a pole star. "With global businesses becoming local and vice-versa, it is very important that every penny spend on internet advertising reaches the intended audience," Kawoosa says.
However, one area where Google+ is fast catching up is display advertising — a market in which Facebook currently leads. By the next year, Google+ will account for 19.8 per cent of the industry, generating $3.68 billion in ad sales, according to EMarketer Inc. Facebook will have 17.7 per cent, or $3.29 billion, the research firm estimates. To achieve that, Google needs to come up with strong features to give competition to Facebook. Already, certain features of Facebook, like the Facebook page, are favoured by Indian advertisers and marketers. Facebook allows companies to open their own page and redirect users to it, a feature which Google+ lacks.
As Supriyo Gupta, managing director, Digilogue Communications, says, "From a marketing point of view, Google+ has a long way to go, while Facebook has become an automatic choice in digital media."
While these two entities would be vying to outdo each other in terms of maximising the number of users, the users can enjoy all the new features being added to the services in the process.