Facebook’s Billion Dollar Paranoia

Silicon Valley is partly driven by Paranoia, even former Intel CEO Andy Grove wrote a book on this subject back in 1996. Companies often buy other companies not to advance themselves or to add assets but to prevent competitors from gaining an advantage by acquiring them instead. This applies across industries though, not just Silicon Valley but it seems to be more pronounced in the personal technology world where innovation seems to happen much more rapidly.

When Mark Zuckerberg announced the acquisition of Instagram, he said that Facebook will not change how Instagram works and will make sure that all the reasons that make Instagram so popular will remain as they are. Sure, Facebook is still trying to figure out how to monetize mobile and Instagram’s team has been working exclusively on mobile platforms, so having them on board at Facebook makes sense, but really, a billion dollars for a photography-based social network that Facebook itself could have built in-house sounds ridiculous no matter how you spin it.

What made more sense to me back then and is now somewhat confirmed by Jennifer van Grove on Venture Beat is that Facebook simply didn’t want Instagram to fall into the hands of Twitter.

Instagram has so much in common with Twitter and the only real difference is that Instagram is for images while Twitter is for text. If you look at the more detailed elements of Instagram, you’ll find parallel features, such as the content stream (obviously), activity stream to see what people you follow are doing on the network, a news stream of your own account telling you who likes your post and who recently followed you, and a section for popular content. This last one is actually different on Twitter but it’s there in some form. The likes and comments are just basic features of today’s social network service.

With these parallel features, an Instagram purchase would make so much more sense to Twitter than to Facebook. Monetizing Instagram would require little modification from Twitter’s promoted content scheme especially since people are much more tolerant to brands on images than on text. After all, not a day goes by on Instagram without seeing branded content show up on your stream posted by people you follow with hundreds maybe thousands of people liking them. The hashtags on Instagram would also make for such an easy sponsorship proposition.

Of course, now that Instagram is in the hands of Facebook, the team may not need to worry too much about monetization, although not to say it’s not going to happen. In fact, I expect it to happen and would be disappointed if it doesn’t, except keeping brands off Instagram might be more preferable to many of its users.

The Instagram acquisition was a rushed deal. A billion dollar decision in just three days is almost unheard of but Zuckerberg did it and without knowledge of pretty much the rest of the company. The Facebook board found out only after the deal was done. Zuckerberg pulled a classic tech startup trait to do things first and figure out the consequences later.

When it comes to Twitter, Zuckerberg had always been edgy since he failed to purchase Twitter in 2008. Ever since that failed bid, everything that Twitter wanted to do, Facebook would copy it weeks or months later but this time it had the chance to upstage Jack Dorsey’s little company and went for it. Even if it cost his company a billion dollars.

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