It was the equivalent of a hurricane that hits a barn on a sunny Sunday spring morning without warning. It shook up the Startup world and has probably changed the ecosystem for years to come.
Monday night was when twitter suddenly started heating up with the news of Instagram being acquired by Facebook. The price tag was revealed shortly thereafter – $1 Billion.
Since then there has been an outpouring of disbelief, anger, frustration, befuddlement, confusion and lots of online petitions. Most people I know of are just plain angry at this development.
Its almost as if ‘yin’ and ‘yang’ decided to get together.
Facebook, the world’s largest and most profitable Social Media company, the ubiquitous factor (and sometimes determinant) in the social lives of millions of people, decided to snap up Instagram without the VC and Analyst community even getting a whiff of the deal. The deal may go down in history as one of the most secretive and probably the most expeditious for $1 Billion Dollars. The last time something like this happened was… er… never.
This deal is seen as over-priced for a startup. YouTube, Skype and a few others were and are also in the same league.
If you thought this post is going to be another digital hate rant, then I am sorry, you have come to the wrong place. I genuinely harbour no sentiments regarding this acquisition apart from abject envy for Kevin Systrom, CEO and founder of Instagram who, along with much of his 6 (or 13) member team, just became a millionaire.
And for what?
An app that turns your crappy iPhone (now android) pics into vintage hipster shots worth putting in art galleries.
I shall however try to explain, through this post, that this app is not just about crappy smartphone pics but much more. Hopefully, we lesser mortals may now learn what that ‘more’ exactly is thanks to Mark Zuckerberg spending a Billion Dollars.
10 Things that 1 Billion Dollars have revealed
Being Social is being Visual –This is something Facebook realised, pioneered and has possibly struggled against it since its inception. Remember how people suddenly went crazy sharing, tagging, untagging and commenting on pictures on Facebook a few years ago? The below infographic just shows how many pictures have been created, shared and finally stored thanks to FB. This underlines just how important it is ‘to be visual to be social’. Think about it. Our most social beings, in the offline world, are those who are also the most seen and most heard about. Before the internet came into being, being seen at the right places, with the right people and the right time was essential to increase your ‘Social Value’. Now transpose this concept to the ‘Online World/Social World’ and we see that similar dynamics exist. Your ability to be seen in the right way and at the right places ensures a certain ‘coolness’ to your reputation online. Suddenly when people see something they like, (a picture of a sunset, a party, a concert) they comment and this leads to a growth in Social reputation. Instagram is a mobile only social network for sharing kick-ass photos and hence increased the social reputation of users by making them seem cool. The fact that you don’t have to put actual hard work but just use simple filters helps!
What Mark Zuckerberg bought – It’s no secret that Facebook considers itself to be a ‘Design’ driven company. It is also no secret that they really suck at design. The Facebook app on my Galaxy Note sucks battery and has a number of features missing. The fact that a $135 Billion Market Cap (Some people value FB like that) social tech behemoth with thousands of employees and $4 Billion cash sitting in the bank can’t make a decent app is disturbing. It also means that while users are moving to the mobile platform for Social Networking, Facebook has stayed far behind. For that matter even LinkedIn doesn’t have a great app. But then again, most people who use LinkedIn don’t mind using it on their laptops or tablets as they see it as a business tool/network. So what exactly did Mark buy?
Largest photo sharing app in the world – 30 Million iPhone users and probably 6 million android users
Tons of Mobile buzz – 5 million android downloads in 5 days. 340,000 waiting list before it was launched.
Mobile stickiness and pics – 1 Billion uploaded pics, 5 million pics uploaded every day
Startup – 2 years old and 13 employees
Monetization Strategy – None
Cash Flows – None
Consumer Love – Lots
Stickiness IS a business model – After the 2009 slowdown, a certain amount of much needed rationalization set into the startup world with startups defining revenues models, monetization plans and related issues at inception. Unlike before when startups with ‘cool’ ideas were funded only because they may eventually have millions of followers, VCs also became aggressive in their search for startups that made business sense. On the whole this made sense and lead to a tempering of the market. But this also might have led to ‘uncoolness’ across the startup landscape. With this acquisition, Instagram has shown that startups and VCs can expect to make a pot of money and cash out if their product/service has lots of users who swear by their name. Most importantly, if the product/service shows great ‘organic’ growth with lots of passionate following and evangelists, you are assured that people will be interested in buying you out. The reason is that with our society’s short attention span, consumption and gimmick driven worldview, to have a product/service with large, genuine and engaged long term following is a great asset in itself and this means much more than just a substantial place in the ‘Goodwill’ section of a balance sheet.
Social is now Mobile – This one is a no-brainer, but since many of us are devoid of suitable grey matter, I shall spell this one out. Social Networks need to have substantial and comprehensive presence on the mobile platform to survive. Over the last year I along with tons of my tech savvy friends, have moved our primary consumption of media (primarily articles, blogs, newspapers etc) from laptops to our mobiles. The young and the social tech savvy, thanks to BBM, twitter, whatsapp and ‘hyper-sms-ities’, feel comfy with this tech and drive the demand + consumption of social apps. The fact that laptop face time is reducing in comparison to mobiles, due to their ubiquity, makes the transition a pressing matter for social networks.
Google better watch out – Instagram has 1 Billion pics. But just try and Google one and you won’t find any apart from those which have been posted or reposted on blogs and pages. Not try googling Facebook statuses, pages, notes etc. Again nothing. This may not sound like much but the creation of these ‘walled gardens’ is really something that Google is very very concerned about. Their crawlers and search capabilities are kept out of the largest repositories of user created content… forever. It means that socially relevant content for you can never be accessed by Google. It also means that Facebook has now more eyeballs looking at more things for longer and hence more ad money. Oh! And it also owns all your content, pics, videos etc.
‘Frictionlessness’ is the Secret Sauce – Over the last few years this term has really come to define the core of many super-startups. I define ‘Frictionlessness’ as “Qualities and Features in a product/service that makes it easy to use, cool to own, efficient to run and requires the skill of newbie while bringing ‘sex’ (A term used by Steve Jobs for Apple products) to the entire experience of using it”. Instagram, Flipkart, Pinterest, Zappos etc all have this sense of ‘Frictionlessness’ which make them so wildly successful.
Below is what Instragram did for a crappy office Pic I took.
Ridiculous Money Ridiculously Fast – Not many people know that Instagram closed a round of $60 Million of funding, valuing the Startup at $500 Million… just 1 week back. What does this mean? Well it means that maybe Facebook got so jittery of Instagram’s success, especially after the Android release that they put in motion probably the world’s fastest acquisition deal put together at this Billion dollar level. It also means that the VCs who participated in the last round of funding for Instagram (Sequoia Capital and Greylock Partners) just made 2 times their money in one week since the Valuation went from $0.5 Billion to $1 Billion. Considering that they had just closed the round and probably hadn’t transferred the money to Instagram’s account (This is usually done in tranches or in blocks) they might have just made $100 Million for signing a piece of paper which says ‘Yo Dawg! We will fund you for $50 Million’. I wish they start teaching “Venture Capital” as a subject in school because it’s stupid to be an engineer or lawyer or an astronaut when you can double fictional money into real money by signing an agreement. I jest of course; these guys have made this pot of gold only after carefully curating a reputation over decades. The team of Instagram, which is 6 to 13 people depending whom you talk to, has also suddenly gotten a bunch of millionaires and the CEO Kevin Systrom has attained a place in Startup History for posterity. One must note here that while $1 Billion seems like a lot of money (Its after all Rs. 5,158 Crore) it also represents less that 1% of the market cap of Facebook and it actually a cash + stock acquisition. FB has $4 Billion in cash just sitting and making piddly savings account interest so this is not a bad deal.
Prepare for a Startup Boom! (And Bust) – This acquisition is like the gong at a gathering (or trumpet at an orgy) which sounds off the start of a great evening. Expect to see lots of first time and serial entrepreneurs rushing to make photo or social apps as targets for eventual acquisition. Also expect VCs to take the bait and deliver their freshly raised funds to the coffers of these startups. If history is anything to go by and due to reduced boom-bust cycles, I would start preparing for the bust cycle right now. For India however, I don’t expect VCs and entrepreneurs to start gunning for non-monetization business model startups. It just won’t happen. Not yet.
You don’t need to be an engineer/programmer by education– Instagram Kevin Systrom wasn’t a programmer by education but learnt it in his spare time in the evenings. This just goes on to show that you don’t need to brood if you missed the chance to go to an engineering college (I didn’t go to one and it hasn’t been a disadvantage in any way). It also shows that while there were better programmers out there, Kevin Systrom took a simple idea and made technology work for the user by making the experience ‘Frictionless’. Unfortunately most entrepreneurs are working on complex ideas which are further compounded by them expecting potential users to work for the tech they develop.
Facebook = Monster – Ok! Let’s get this clear. People hate Facebook despite using it all-the-time. Even the mighty Google is looked upon with suspicion but never hate. Apple is revered, LinkedIn is respected, Twitter is liked, 9Gag or Tumblr are heavily used and Instagram is adored. But Facebook is just hated. I have yet to come across more than 1-2 articles which rated this development as positive. And even those seemed as if they were pleading the reader to share their point of view. This is troubling for an organization which claims to want to change the world and is going in for probably the most anticipated IPO in the last 5 years. The forced ‘Timeline’ shift on profiles is the latest such change which is reviled and hated by users. Mark should do some soul searching, become a Buddhist Monk or get a new PR agency. I would probably recommend all three.
ZocDoc offers a convenient, free way to find a doctor and book an appointment instantly online. ZocDoc’s mission is to improve access to healthcare. The service currently offers patients the ability to book appointments with doctors and medical specialist in the US. Its website is attracting doctor-seeking browsers at the rate of 800,000 a month. The company has raised $95 million and has been invested in by some of the biggest names in the VC industry.
Spotify offers streaming music from major and independent record labels including Sony, EMI, Warner Music Group, and Universal. Users download Spotify and then log onto their service enabling the on-demand streaming of music. Its deal with Facebook has helped this Swedish startup take the music world by storm. Facebook integration is now compulsory for new accounts. Users can register either for free accounts supported by visual and radio-style advertising or for paid subscriptions without ads. It now has about 2 million subscribers and 10 million users and makes an estimated $100 Million +.
Storm 8 is the creator of role-playing games on iPhone, iPod Touch and Android. The company has more than four million daily active users and those 200 million downloads have are on over 58 million unique devices. It boasts of a number of top mobile game titles and one of the highest valuations in its segment. But what impressed me most was the fact that until recently THEY HAD NEVER RAISED ANY EXTERNAL FUNDING. It is now looking at raising $300 Million.
Square is a startup service that enables anyone to accept credit cards anywhere. Square offers an easy to use, free credit card reader that plugs into a phone or iPad. It is on track to process $2 billion worth of transactions on an annual basis and regularly records over $ 10 Million of transactions over weekends. It now has over 8,00,000 merchants who use its service.
Similar to Dropbox but meant for large organizations and companies. Box.net defines itself as a cloud storage and collaboration solution for enterprises. Just like Dropbox, it is based on a freemium model. Though it recently turned down an offer for acquisition which valued the company at $550 Million, most people feel that $1 Billion is a better estimate of what they are worth. Box.net currently has 6 million users and some 60,000 businesses employ its cloud-storage software, including 73 percent of Fortune 500 companies. To give you an idea of their ambitions, Box.net has openly been challenging Microsoft for domination of the Cloud Storage Market with a number of high profile deals.
Rovio is the company which made Angry Birds, also known as, the only reason why most would use a tablet. Apart from the fact that it is one of the most paid for games on mobile app stores, it has had more than 500 million downloads till date, is now part of a Hollywood Script, has seen partnerships with Samsung and just turned down an offer from Zynga for $2. 5 Billion. That’s a lot of numbers for a company that makes games about birds with anger issues and green pigs who like eggs.
India’s most successful eCommerce startup. Though rumours of it being valued at $1 Billion have surfaced from time to time, most people agree that it still has a few more months of explosive growth to get there. Though by factoring in PPP (Purchasing Power Parity) it probably has hit the $1 Billion mark.
Klarna is one of Europe’s leading providers of payment solutions for e-commerce. It lets people pay for stuff they have bought online after receiving it from merchants and helps create a much more trustworthy environment for transactions. It already has 600 employees and clears $2.5 billion worth of payments from 6 million consumers across 14,000 merchants and has recently raise $115 Million in its pre-IPO round.
Startup Yapper 