Facebook needs Instagram to stay king: analysts

Facebook wasn't trying to net and monetise a large user base with its Instagram buy, according to analysts, but rather was making a strategic acquisition to keep competitors at bay and ensure that it remains at the heart of social media.

Facebook paid US$1 billion to secure the photo-sharing app, making many in the industry look twice, since the app has only been around for a relatively short time, and has an employee count of less than 20, despite its 30 million users.

Anyone who thought that Facebook was buying Instagram just to net the users would be mistaken, according to Gartner analyst Ray Valdes, who said that "most Instagram users have Facebook accounts". Although he sees the engagement and brand loyalty of the users as an asset, as well as the Instagram design team and any patents that Instagram might hold, in his mind, none of this could justify the "eye-popping" US$1 billion valuation.

After all, he said, Instagram only has one feature, even if it does work really well. Therefore, he believes that the motivation for the purchase was "likely that Facebook wanted to keep Instagram out of the hands of a competitor".

"Facebook is at the top of the heap of the social web," he explained. "There are others that want to unseat them, but no one else has all the pieces. Instagram would have been a weapon in someone else's arsenal."

Valdes didn't see Instagram itself as a threat to Zuckerberg's website, believing that Facebook is trying to stop other, larger social competitors from capitalising on Instagram's success.

However, Telsyte senior research manager Sam Yip disagreed. He believed that Instagram was a threat, and not just in the hands of any other social media aspirants, such as Google or Twitter.

"It's really about a competitive move to take out a potential giant," he said. "Google, Twitter have never been competitors to Facebook."

The reason why Instagram is so powerful, Yip said, is that it is so good at sharing photos, which he considers to be social media's main reason for being. Instagram only requires one click to share, unlike Facebook, which needs several clicks.

"It's the realisation that photos are at the core of the social networking experience, and realising that mobiles are at the centre of computing," he said.

"I don't think that a billion is a lot of money at all," he continued. "While a purchase of a billion dollars may sound big at first, if you're talking about the whole reason that social media is used, you're talking about a drop in the ocean.

"Think about Facebook without photos ... it would be horrible. That's why they need to be sure that they have the best of the best photo applications available."

Is Pinterest the next to go?

Valdes believes that given Facebook's competitors' failure to snag Instagram, they will look to other services like Pinterest, driving up their price.

"The one ripple effect of this acquisition is it makes the Pinterest service much more attractive," he said. Yip agreed that other photo services will certainly be valuable for the same reason that Instagram was.