Facebook Buys Instagram. How Will Microsoft React?

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Instagram is a free photo editing and sharing application which was launched in October 2010. It allows its users to take photos and apply one of the many digital filters available, then share it on social networking websites like Facebook and Twitter. When the application was launched, it was only available for Apple mobile users (iPod, iPhone, iPad) but in April 2012 they made it available for Android as well. The application is being distributed for free via App Store and Google Play. Because of the application’s popularity, many social networks made modifications and tweaks on their websites for Instagram users because only after one year of existence, Instagram had 10 million users already.

About The Purchase

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On April 9, 2012, Facebook made an announcement regarding the upcoming purchase of Instagram. Instagram, with only 1 application, only 13 employees, is supposed to receive $1 billion in cash and stock. Until now, Instagram had only two rounds of funding, first in February 2011 when the company raised $7 million from a variety of investors and $50 million in the first week of April when the company was valued at $500 million. While these funding rounds, especially the first one, helped the company grow and expand, no one had ever expected this purchase to be worth $1 billion. While this may sound like the “purchase of the year” and there aren’t doubts it can be it, Facebook played very well. It is being said that Facebook itself, is worth $100 billion which is exactly one hundred times more than what they are going to pay for Instagram. While someone may think it is a lot for a company to give such a big sum when it only holds $10 billion in its hands, it isn’t exactly like that. Probably Facebook and specifically Mark Zuckerberg didn’t care much about the sum paid. Of course they won’t go insane and pay dozens of billions but keeping away such an amazing start-up from the hands of Google or Microsoft, is worth much more worth than the money they paid. It was probably thought by the “Big Daddies” that Instagram would be killed on its development road. Facebook has waited for a while before they decided to purchase Instagram, it’s most likely they’ve understood its real value only after the second “wave” of funding and after extending its market. We can remember the “Flickr Story” when in 2005, Yahoo (a prosperous company at that time) acquired Flickr , for only $30 million making it the most popular photo-sharing web site.

Microsoft At the Moment

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Over the years, Microsoft has been building a series of successful products, making the company stronger and stronger.. It survived many civil actions against it. However, even if it has been really stable and growing over the past decades, it now faces a few problems. In 2011, it has been reported that Microsoft, Dell and Intel combined are worth the same as Apple. This makes Microsoft leave the leader position on the technology market. Microsoft has always been recognized for its Windows operating system, it isn’t so successful with web products. The company tried a few products which only became stable but not phenomenal. Bing, their search engine, is well known for being stable and receiving a majority of its traffic from Internet Explorer users, who represent  52% as of 2011. Since 2007, they have renovated and updated their products, by releasing: Windows Vista, Widows 7, Windows Mobile and recently announcing the beta consumer preview of Windows 8. An unexpected move by Microsoft was done in May 2011, when the company decided to buy Skype. Skype was bought by Microsoft for $8.5 billion , the biggest purchase the company has ever made. A very large amount was indeed invested but probably having Skype under its wing, Microsoft will get on the top of the leaderboard soon. We only have to wait and see how Skype will evolve and what marketing strategy will be used by Microsoft to keep this product alive and attract more users to it.

Why Microsoft Doesn’t Buy Successful Web Companies

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We can see that Microsoft isn’t very successful at building web products if they aren’t associated in a way with its OS or big properties the company owns. That’s why the company should make the appropriate conclusions and with the financial possibilities it has, either investing a lot into themselves, so they could become the leaders again, or, begin buying successful web products and companies that will have success. Except Skype, Microsoft hasn’t bought anything very significant that would still be appropriate to show as an example, a few reasons this hasn’t happened are:

  • The Company Sees No Benefit in Spending More Money

I highly doubt this is the main reason why Microsoft didn’t please us with a revolutionary web product with the current value of approx. $200 billion. However, it could still be a reason. There aren’t any financial details how much was spent on developing the Windows 8 OS so we can’t rule out anything, at least for the time being.

  • There aren’t Opportunities on the Market

Well, this is more possible but still it depends on what the heads of Microsoft would like to aim at. While there aren’t any revolutionary ideas available for purchase, there are more possibilities in the social media sector. I suppose that Microsoft has an eye on both, Twitter and Pinterest. While Twitter is a more stable, day by day growing social network with a really unique idea, they may aim at Pinterest more because even though it was launched only in May 2010, it has become the third most visited social network, overtaking such networks like Tumblr, Google+ and LinkedIn. In my opinion, Pinterest isn’t a great business opportunity for Microsoft because it may fail in a year or two. I wouldn’t give Pinterest a longer lifespan than 3 or, at most, 4 years. Twitter has been around for a while, and while it’s been quietly killed by millions of spammers using Twitter for their benefit, a radical change in user policy and a better fight with the audience which isn’t using Twitter as it has to be used, can solve and make Twitter a very prosperous company.

  • They are Preparing their own Product

This is the most possible prediction I can think of. I think, they will be releasing a product to rock the web together with the new Windows 8. Its has been already said that Microsoft has success with almost every product related to its OS, so, why wouldn’t they use this benefit and release a web service really close to the new OS? They could even win some mobile audience if this service will be implemented as a primary one on the Windows mobile as well.

Microsoft, Twitter & Facebook and Instagram

I don’t believe Instagram is a big opportunity loss for Microsoft. For Twitter? Most likely, but not for Microsoft. Microsoft aims on software and products used by masses. I think a mobile photo sharing service wouldn’t interest Microsoft because of one important factor. They don’t have any acceptable space to use the respective service. Facebook will be using Instagram as an addition to its mobile version, as the current Facebook version for phones isn’t very well thought out and isn’t ready yet to be used by masses. Instagram will be the “final touch” which will encourage Facebook users to use the mobile version of the site more. I suppose Twitter was thinking about having a collaboration with Instagram, but definitely not buying it. Twitter can’t afford paying 1 billion for a photo-sharing company with the 2010 estimated revenue of 140 million dollars.


I believe Microsoft isn’t really worried about the recent acquisition of Instagram. Microsoft has other priorities at the moment and if they are not planning the release of any social network in the upcoming days, then, they don’t have much to lose with the loss of Instagram.

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