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A fool's paradise: Was Instagram too free to last?

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April 12, 2012

Following Facebook's astonishing US$1 billion acqusition of mobile photo-sharing app Insta...

Following Facebook's astonishing US$1 billion acqusition of mobile photo-sharing app Instagram, Gizmag ponders whether free services are a fool's paradise (Photo: Rick Turoczy via Flickr)

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There's an adage with which no doubt you're familiar - the one about opinions and their commonality with a particular part of the human anatomy. But the adage never rang true for me, implying as it does that people only have the one. In my experience, opinions are more like lumps of excrement: people are full of them, and very eager to get them out of their system at the earliest possible opportunity.

For this reason, I won't bore you with my own views on the recent news that Facebook acquired mobile photo-sharing app Instagram for a frankly astonishing $US1 billion. That's not to say that I'm ambivalent - as a regular and avid user of Instagram I'm anything but. But my views, or perhaps more precisely, concerns, are by no means unique, and not especially insightful.

Neither will I trouble you with speculation as to what this means for Instagram and its community of impassioned users, who, along with myself, share faux-aged tinted photographs of sightings from their daily lives - typically sunsets, cats and, in the case of Instagram's more youthful contingent, very often themselves.

This is the sort of thing that goes on Instagram (Photo: Ari Helminen via Flickr)
This is the sort of thing that goes on Instagram (Photo: Ari Helminen via Flickr)

I once postulated that sharing a nonsensically tilt-shifted HDR of a teenage girl holding a cat would be a sure-fire way to make it onto Instagram's in-app popular page where photos receive thousands of views. Actually, though, there are many many talented photographers sharing images on Instagram.

The fact is, no one except a handful of people inside Instagram and Facebook knows what the future holds, though it's certainly true that if we look to acquisitions of the past for clues, there are worrying precedents - even if we limit the field down to the services Facebook has itself obtained (recall Gowalla).

A question fewer people seem to be asking is was such a takeover inevitable, given that Instagram is a free download. Since its launch 18 months ago, Instagram has attracted a community 35-million strong, but apart from investment it hasn't generated a bean in revenue. One has to wonder, of that part of the community that is now jumping ship for competing services, what on Earth did they think was going to happen? The situation as it was couldn't continue indefinitely.

Kittens, sunsets, rainbows - Classic Insta-fodder (Photo: siegertmarc via Flickr)
Kittens, sunsets, rainbows - Classic Insta-fodder (Photo: siegertmarc via Flickr)

One suspects given the rate of growth of the community, the lack of a download fee and the lack of in-app advertising, that Instagram's creators were always angling for a takeover. Sellouts? Show me any company with only 13 employees that operates solely out of a meeting room that would turn down $1 billion.

There's a lesson here. If you don't want the free-spirited, independent web and mobile services you use to be acquired by your least favorite corporate web behemoth (or equally, if you don't want it to go under in a glorious though ultimately futile blaze of non-viable independence), be prepared to fork out some money.

It's a point that's been made very ably by online bookmarking service Pinboard's developer, Maciej Ceglowski. He knows a fair bit about takeovers - not because his service was acquired, but because a rival, the rival really, Delicious, which had been acquired by Yahoo! was revealed to be earmarked for closure by the online giant. Users jumped ship to his service en masse. Pinboard has charged a one-time sign-up fee for its service from the very beginning - a fee derived from the number of users multiplied by $0.001 - which currently amounts to a fee of $9.73. Ceglowski says the fee is to defray running costs while discouraging spammers to sign up. (Delicious was subsequently saved after being sold to Avos.)

Screenshot of the Pinboard online-bookmarking service
Screenshot of the Pinboard online-bookmarking service

In a post on the Pinboard blog entitled Don't be a free user, Ceglowski makes the case for paid-apps from the user's perspective. Crucially, Ceglowski distinguished between free software and free services, arguing that the former can be sustainable. The latter category, though, includes most apps that provide any form of online functionality (such as Instagram), and with the seemingly unstoppable shift towards Cloud-based technology, software is increasingly service-based.

Ceglowski's argument is that a rapidly-expanding community (a bill which Instagram certainly fits) costs an awful lot of money for a service provider, simply in terms of meeting demand. A paid service can meet those costs, and make a profit besides, whereas a free service is doomed to lose money hand over fist if it becomes popular. Those losses could be viewed as an investment if community acquisition and ultimate takeover is the name of the game, but it's an unsustainable state of affairs that will result in either acquisition or failure - unless there's an inexhaustible supply of money to burn.

Maciej Ceglowski highlights the problem faced by rapidly-growing free services (Image: Mac...
Maciej Ceglowski highlights the problem faced by rapidly-growing free services (Image: Maciej Ceglowski)

"It's hard to resist a big payday when you are rapidly heading into debt," Ceglowski reasons in the blog post. "And because it's culturally acceptable to leave your user base high and dry if you get a good offer, citing self-inflicted financial hardship."

But users are not without a course of action. "Stop getting caught off guard when your favorite project sells out," Ceglowski implores. "If a little site you love doesn't have a business model? Yell at the developers! ... Like a service? Make them charge you or show you ads. If they won't do it, clone them and do it yourself. Soon you'll be the only game in town!"

The Facebook acquisition doesn't resolve the question of how Instagram will make money. But since Facebook has an active user base of 845 million people, those losses are a proverbial drop in the sea. What the future holds for the app and its community remains to be seen.

Further reading: Pinboard blog - Don't be a free user

About the Author
James Holloway James lives in East London where he punctuates endless tea drinking with freelance writing and meteorological angst. Unlocking Every Extend Extra Extreme’s “Master of Extreme” achievement was the fourth proudest moment of his life.   All articles by James Holloway
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3 Comments

The $1bn goes to the equity owners, which are the financiers, which almost certainly included facebook luminaries if not facebook itself.

If I give myself $1bn, does that make me worth $1bn?

The answer is - it doesn't matter. The number is so big, nobody can see past it anyhow, and the noise it made will drown out all the sordid details of what's really going on anyhow.

christopher
12th April, 2012 @ 08:10 pm PDT

Its hard to miss Instagram when I've never even heard of it before!

Grunchy
13th April, 2012 @ 12:12 am PDT

for an exhilarating moment there I thought 'Instagram' was a new 3-D printer that could print coke! Ha! Sorry. nano-printing though - who knows? I hope I'm still reading Gizmag when I'm 104.

Chris Clarke
14th April, 2012 @ 02:25 am PDT
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