The question Instragram has to answer for themselves is, is losing these users a bad thing? It's an obvious answer, do you want 16 million users who aren't making you a dime, or 12 million users who are able to be monetized?
Even if it dropped to one million, one million users making you money is arguably better than any number of users who aren't making you money if you're running a business.
Sure, it's a bad (or at least unwelcome) thing...one of a social network's primary currencies is the network effect that entices more and more people to make it an essential part of their online lives. Every millon users, even if they're all dead beats, is more leverage to convince big companies who will pay you to join into your ecosystem.
The network effect is nice, but money is nicer - especially if you were just bought for $1b by the epitome of the network effect. Instagram needs something to sell in order for companies to be willing to pay to join them, and what can they offer but the personal information of their users?
Yeah, I really got the feeling that SV had finally jumped the shark when Instagram got sold for $1 billion. How can a service with users, but no clear revenue stream, be valued so highly? It seems like people have gotten too caught up in navel (and traffic stats) gazing to see what's really important when running a business.
It wasn't worth $1bn on the general market, but it was worth 1% of Facebook's equity (which at the time was worth $100bn)
Photos are Facebook's biggest feature by far, and Instagram is the only company that has come close to challenging it, when you look at it in those terms, 1% isn't a lot at all
> And what kind of revenue does that feature bring in exactly? How exactly does Facebook profit from providing free photo hosting to a billion people?
The "goal" of facebook is for you to share and connected with your friends. Photos are just one of the things everyone wants to share. Without it, Facebook would have a giant hole for a competitor to attack.
Facebook profits by having the most active and connected users. It's not necessary to make money from each feature. That's extremely short sighted.
> It's not necessary to make money from each feature.
Which is correct. Google provides search functionality, but makes its money from advertising.
But what feature exactly is Facebook making money off of? They seem to still be scrambling to find a revenue source. I don't understand how this situation is at all acceptable from the investors' viewpoint. That is why I say that SV has jumped the shark.
Exactly. This is the poster child for "acquihires" in that it was a defensive move to get Instagram user mind share encapsulated into face books properties and an offensive move to prevent any competitors from acquiring the user base's attention.
While it may not have "inherent" value, it certainly has value. The attention of a user base can be extremely valuable if effective advertising is used. The majority of Google's revenue comes from advertising, and no one would claim they are not a viable business. Facebook is now making a non-trivial amount of money from advertising as well.
> The majority of Google's revenue comes from advertising, and no one would claim they are not a viable business.
Google is the exception. Or rather, search is the exception. You can make money off of search advertising because people are explicitly looking for things when they perform a web search. So if you show people good ads, they will click on them.
But how many people are going to click on ads when they're trying to connect with their friends on Facebook? Facebook's entire premise with respect to advertising is that they have more information about the user, so they can target ads better. But it doesn't matter how targeted an ad is if the user isn't interested on clicking on it when it's presented.
> Facebook is now making a non-trivial amount of money from advertising as well.
There's a big difference between "non-trivial" and "enough to turn a profit".
> I don't agree at all. If the users attention had no value, then you would not see 800 million users on facebook.
I don't see how the value of the users' attention determines whether or not they are on the service. If you put out free food on the street, people will come and eat it, and you will have their attention. Doesn't mean you can turn a profit doing that.
> Google+ and FB are in direct competition for the attention of the same users.
Yes, they are, but I have yet to see "user attention" be properly monetized on a large by anything other than search engine advertising. Facebook is still trying to find solid revenue sources. Their new gifts platform is the latest example of this.
People forget how well connected Systrom and Instagram were/are. Systrom worked at early Twitter, worked at Google, close with people at Facebook, and seeded by Andreessen ($75mil off a $250K investment). At the end of the day, it's about people. The speed of the transaction helped too.
Right, but you can't always do everything. Sometimes tradeoffs have to be made. I'm not saying this is necessarily one of them, but Instagram could see it as one.
Depends on whether your business model is user-profiling/data-mining, ads, or monetization of user content.
Lurkers like I are fine with regards to display ads where the number of viewers is important, and where user profiles can be created over their like/follows/follower habits.
It's not like people who don't post are necessarily bad for business.
Well the point I was making was that if by monetizing your userbase you're going to lose some of your userbase, it's still better to monetize a smaller userbase than to have a large userbase with no cash inflow.
Were there other options available to them that wouldn't have lost users? Possibly. I have no stats to back it up other than personal experience, but I would venture to say that no matter how you monetize your userbase, there's always going to be some people who expect it for free, no strings attached, and will cause a stink then leave if there's any monetizable component to it.
I've been there myself and its a helluva slippery slope. When you're a start up growth is everything so losing 25% of your uniques is terrible BUT... They've already been acquired so now for Facebook to lost 25% of instagrams uniques... You may have a point.
However how many are already Facebook users and thus already profitable?
all i know is that before i deleted my account, around 15 close friends deleted theirs. We are not teenagers, but adults with well-paid jobs - i.e. the sweet-spot target demographic for most big ad-spending brands.
It was over the TOS but that doesn't mean that they left because they didn't want to be monetized. They were unhappy with the way that Instagram went about it.
If Instagram notified users of a change of TOS and clearly stated that the scheme would be opt-in and perhaps offer a mechanism where users could get a cut of the revenue obtained through the use of photos that they specifically flagged for commercial use, media coverage would have been completely different and I doubt that many users would leave in this scenario (or other more user friendly scenarios).
Even if it dropped to one million, one million users making you money is arguably better than any number of users who aren't making you money if you're running a business.