Facebook Learns that You CAN Buy Love (It Costs $1 Billion)

Wednesday Apr 11th 2012 by Mike Elgan
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Facebook's acquisition of Instagram reveals how tech companies are wooing users.

Beatle Paul McCartney wrote a song in 1963 that famously said: “money can’t buy me love.”

But as Facebook learned this week, that’s not true. Money can buy you love, if you spend enough of it. And I believe a lot more companies will be making similar acquisitions for similar reasons.

Facebook spent a billion dollars on a free app that generates no revenue.

Facebook’s acquisition of Instagram shocked everyone, but only because of the price. What did Instagram have that Facebook needed?

It wasn’t users. The social app has to date attracted about 30 million users. Facebook probably has more than 800 million.

It wasn’t functionality. Instagram enables users to apply cheesy filters to their camera phone apps, a non-patentable feature now shared by dozens or hundreds of apps and easily replicated. They can then add a caption and upload it to Twitter, Facebook and send via e-mail. Big deal. And people can follow each other. It’s not like Facebook can’t do that already.

In fact, Facebook got three things from the Instagram acquisition, and only one of them is worth a billion dollars.

First, Facebook got a competitive landscape with one fewer competitor.

Second, Facebook got to intervene in Instagram’s decision-making process before they decided to support Google+. (Note that this is just a theory and a prediction on my part.)

But the third and real reason -- the billion-dollar reason -- that Facebook paid so much for Instagram is love. Specifically, the love users have for Instagram.

Facebook is a strange creature. It’s one of the most popular sites ever. Some people spend hours every day on the site. But I’ve found that hardly anyone loves Facebook itself.

People love their family and friends. They love connecting with people they know. But try to start a conversation about Facebook itself on Facebook, and nobody wants to talk about it, other than to complain about privacy, complexity or objectionable new features forced on users.

Facebook has no charm, no charisma. The Facebook user experience -- the features, the design, the functionality -- doesn’t thrill users in any way resembling, say, the way Apple users feel about their iProducts, or the way Google users feel about Search, Google+ or Android.

You don’t hear the phrase “Facebook fanboy” much.

But Instagram is one of those rare apps that really engenders strong feelings among users.

People have an innate need to share aspects of their lives that inspire them. That’s why social networks have become so central.

Instagram lets people do that in an appealing way at minimum cost (zero) and with minimal effort (two or three touches of the finger on a smartphone screen).

People with an impulse for creativity can express their feelings and experience in a way that feels creative, but which doesn’t take a lot of skill or talent, which is rare.

Instagram feels good to use. People love it -- not so much because of who is on the network, but because of how the service makes people feel.

Facebook wants that. But so far, they don’t know how to build a lovable service. And in their defense, it’s very hard to do when you’re a big company.

But love is easy to buy.

Now that Facebook’s got the goods, I believe they’ll try to sprinkle that Instagram love potion all over the service. Expect them to integrate the Instagram interface, filters and more into mobile Facebook apps.

I also think we’re going to see a lot more acquisitions like this.

I don’t know when it happened, but at some point in the last ten years, non-technical users became more important than technical ones.

The business models of technology companies used to be all about selling technology products. The most profitable products were the high-end ones, which would only be purchased by technical enthusiasts.

But now consumer technology is dominated by the non-technical users, and business models are dominated by advertising, especially in the case of Google and Facebook, and also general content.

Other major technology companies, like Apple, Amazon and many others target mostly general, mass audiences.

The broader public is ambivalent about innovation, functionality, features and so on, and simply respond to how products make them feel about themselves. A social app or a gadget is “purchased” and used just like clothing or jewelry or brand of beer -- as an expression of personal identity.

If you feel contempt for this idea, then you’re probably a technical user.

In any event, there are many reasons why big companies buy small ones. They want to buy talented employees with special skills. They want patents. They want new markets.

The Facebook acquisition of Instagram represents a new era of big-dollar acquisitions in which big companies buy small companies with products that are loved by users.

They are literally buying love.

Of course, this changes everything for Silicon Valley startups. Forget about the business plan. Forget about monetization. Just make something that lots of people fall in love with.

Paul McCartney was wrong. The thing about love is that it’s very hard to create if you’re a big company. Tech giants can invent new technology, engineer their way to awesome features and design in a way that impresses people.

But love? That’s not easy to create, invent, engineer or design for.

But you can always buy it.

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