Facebook looking more like google now
Moustafa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The highly publicized purchased of Instagram by Facebook for a reported 1 billion dollars at first might make one think back to the early days of the dot com craze where any company with a domain name would be valued astronomically (think pets.com).
It apparently took the founders less than 8 weeks to code and set up the site, they employed less than 15 people and had only one real function and that was to share still photos of its users via smart phones. This being said, not since twitter has a social media site been as sticky as Instagram has become. The key concept here is the evolution of mobile advertising via the smart phone, which seems the next logical step for companies looking to capitalize on potential advertising dollars. Pandora (NYSE: P) has seen this in their most recent quarterly report that missed earnings estimates and sent shares tumbling. They are increasing not only clients, but also time spent with their service. Their issue was the fact that their mobile advertising revenues were far behind their traditional online advertising revenues. This will not continue and if a company like Pandora can continue to grow customers and time spent on their service, mobile ad revenues will equal and soon outpace traditional online ad revenue streams.
Getting back to Facebook, this purchase is the perfect fit for the monetization of Facebook as a publicly held company. Soon Facebook will have to report earnings and answer to shareholders. The faster they can monetize their incredible platforms online and via smart phones, the more successful they will become. Think when Google (NASDAQ: GOOG) went public. Their main revenue source was online advertising and though since Google has swallowed many other companies, created all kinds of online tools and an operating system. Their main source of revenues remains mobile advertising.
Getting back to Instagram and Facebook, a favourite past time of Facebook users, admitted or not, is to peruse others photos online. Instagram provides the ultimate fix for those who like to see what others are up too, comment, and follow. As Facebook begins to accelerate their monetization of not only their platform but also the Instagram platform, we can see how Facebook is rising to the challenge of competing with Google and potentially living up to their sky-high valuations. Face book’s purchase of Instagram is a great step towards ensuring their stream of mobile advertising and online advertising continues to grow.
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