photo courtesy Keith Kay, Facebook
Yesterday, Facebook bought Instagram, a company that was founded a little more than a year ago, has 20 employees and no income, for $1 billion.
Admittedly, a billion dollars isn’t what is used to be, but it still says a lot.
It says a lot more that only a few months prior, Kodak, the standard-bearer for photography for more than 100 years went into bankruptcy – that is, it was worth nothing, or even less.
What happened?
First, Instagram ate Kodak’s lunch, or rather the thing that made Kodak so powerful and so valuable when it was first founded – You Push The Button, We Do The Rest.
That was the mantra of George Eastman, Kodak’s founder.
Prior to Eastman, making a photograph had been an incredibly complex process involving big heavy expensive gear, professional talents and a degree in chemistry to process the print – a bit like making a video with a betacam and a CMX edit suite.
In any event, what Kodak did was to streamline the whole process to a simple one-button step.
Eastman not only streamlined taking the photo, he effectively got rid of the chemistry entirely. Kodak processed the photos and delivered to you a dozen or so nice prints that you could share with your friends or paste into an album, or throw into a drawer. That was the distribution system.
Kodak, of course, could have developed and owned Instagram. Instagram effectively did for digital photography what George Eastman did for prints – one stop processing and distibution – except in this case, it was uploading to Facebook instead of pasting into the album.
So, while we all agree that Kodak missed the boat, has Facebook overpaid for something so seemingly simple and obvious?
The answer to this is: who knows? In 2006, Google paid what seemed the absurd price of $1.65 billion for YouTube, which now turns out to be the second most popular search engine on the web, after Google itself, but Google still searches for ways to monetize its extraordinary traffic. On the other hand, Rupert Murdoch paid $650 million for MySpace. Last year, News Corp sold MySpace for $35 million.
What makes Instagram so valuable is its early penetration of the newest and hottest real estate in the digital world – mobile.
Instead of being an application from the web smacked onto your phone, Instagram is a child of mobile technology.
And why is mobile so hot?
Look at it this way: There are 6 billion mobile phones in circulation already. If you’re on a mobile platform, you don’t have to buy a desktop or a laptop or an X-Box. Your business is already in 6 billion hands. Instagram bypasses what we will call ‘the hardware issue’. If you want to take photographs and share them, it also bypasses the need to buy or take with you a digital camera. You always have a digital camera in your pocket. Hence, if I were you, I would sell my shares in Canon and Nikon and probably Sony tomorrow.
Suddenly six billion people are going to be able to take and share photos whenever the fancy strikes them – which will be pretty often.
Can video be far behind?
