The podcast episode, "Acquired," delves into Facebook's acquisition of Instagram, a pivotal moment in the tech industry that ushered in the era of unicorns and reshaped the social media landscape. Ben Gilbert and David Rosenthal dissect the acquisition, categorizing it, analyzing potential alternative scenarios, identifying key tech themes, and ultimately grading the deal.
The hosts begin by recounting the acquisition's basic facts. Facebook acquired Instagram in April 2012 for $1 billion. Instagram had a mere 13 employees, no revenue, and 30 million users. This valuation was shocking given that billion-dollar valuations were rare at the time. Just before the acquisition, Instagram had raised a Series B round valuing the company at several hundred million dollars, underscoring the surprise surrounding the final acquisition price. Remarkably, Instagram had 2.3 million users per employee at the time, illustrating its efficient scalability. As of 2015, the platform had around 2.6 million users per employee and 400 million users in total.
The podcast then explores why the acquisition was crucial for Facebook. While Facebook dominated the desktop social networking scene, it struggled with the mobile transition and its mobile app was an HTML5 mess. The company recognized that it was becoming a utility rather than a fun place for users, especially younger demographics. Apps like Instagram and later WhatsApp were attracting users with their engagement, something Facebook needed to capture to continue driving advertising revenue. In contrast to Facebook's cluttered desktop interface, Instagram offered a simple, mobile-first experience with immersive, full-screen photographs.
Analyzing the categorization of the acquisition, Ben believes that the acquisition falls under product due to Facebook's decision to let Instagram evolve independently. However, David argues that it falls under technology because it became a vital component of Facebook's mobile strategy. Without Instagram, Facebook might not have aggressively pursued other mobile acquisitions like WhatsApp and may not have built its suite of mobile apps, including Messenger, which boasts 700 million active users.
The podcast then considers the potential alternative reality if the acquisition hadn't occurred. While Instagram's user base might have grown more slowly, they might have lacked the resources and prioritization that came with being part of Facebook. Instagram's ad platform has become a very real source of revenue. Without Facebook's existing advertising funnel, gaining traction in the advertising space could have been challenging.
The podcast then introduces a new segment about technology themes. Ben believes the acquisition demonstrates the importance of "owning the audience." Being the default platform that users visit for leisure and distraction allows a company to control the channel and leverage its power to reach its audience. David identifies the technology wave as a major theme, showing how the mobile wave surpassed the desktop wave. Facebook recognized and capitalized on it. He also notes the scalability and leverage technology provides, emphasizing the incredibly high number of users per employee.
In the conclusion, both hosts give the acquisition an "A+." They agree that it may be one of the best acquisitions in technology history, considering the post-acquisition returns. This is especially noteworthy since the acquisition happened before Instagram had generated any revenue of its own.