Facebook vs Trendy Apps, a Business Model
When you do something one time, it’s just a coincidence, but when you do it again we start approaching habit or planned event status. For the second time now, Instagram has seen a successful app emerge and simply decided to copy what they were doing. It’s really quite an ingenious business model that Instagram is able to utilize due to their massive resources and user base.
First in Instagram’s gun sights was Vine. Vine’s video sharing became a big success, so Instagram simply decided to add the ability to take video. Now Instagram’s new Direct feature is aimed squarely at the chest of Snapchat. With Instagram Direct you can now send direct private messages to fellow Instagram users.
The funny part though is that Instagram itself was once the successful app darling that Vine used to be and Snapchat currently is. Yet Instagram simply caved in to the Facebook giant, and its developers were able to cash in their intellectual property chips.
Instagram was first introduced on IOS and hit 30 million users in its first 18 months. They then proceeded to release a long awaited Android version of the app which got millions of downloads in basically an instant. All this spurred Facebook to buy Instagram for $1 billion back in April of2012. This seemed an insane amount of money to pay for a company that had no source of revenue at all, but it was a sign of things to come in the industry. Instagram is slowly integrating some video ads now to attempt to produce revenue, but they are certainly being careful about it.
Thus, Instagram is of course now owned by Facebook, the same Facebook that reportedly had a $3 billion buyout offer for Snapchat rejected in November of this year. That’s 3X the offer that Instagram jumped at, but the Snapchat people didn’t cash in their chips. This is either a colossal mistake or it could result in a much bigger offer down the road. Snapchat also has zero source of revenue. So if $1 billion for a company with no revenue source was insane, what does that make for an offer 3 times as big that got rejected?
As anyone who has seen “The Social Network” knows, CEO Mark Zuckerberg is not the type of guy who takes rejection well. He tried to buy Snapchat, now he’s going to try and crush it with Instagram direct.
Most people that use Snapchat, probably have an Instagram account as well. Instagram is banking on the ease of getting all your functionality from the same app. Why would you have both Snapchat and Instagram apps on your phone, when you could do it all from Instagram? It’s the same thing that happened to the Vine people. Vine blew up and was all over the place, until Instagram decided to add video of course. Then Vine slowly went the way of the dinosaurs. There are some people still clinging on to Vine, but they are few and far between.
So do the young 20-something owners of Snapchat know what they are doing by resisting the piles and piles of cash that Facebook tried to throw at them? Only time will tell on that one it. Older business people are certainly ridiculing them for passing on that offer, yet that’s what they always do to executive leadership at that age. Yet remember, Mark Zuckerberg was once one of these young CEO types, in fact although he might not seem it he’s still only 29. Zuckerberg seems to have known what he was doing, his business model is doing just fine.
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