What Facebook’s Instagram Acquisition Means for the Market Research Industry
By now, you have probably heard the incredible news that Facebook bought Instagram for $1 billion in cash and stock. For the few of you who avoid the news and water cooler conversation, here is a recap:
Facebook bought Instagram – a two year old start-up, with about 30 employees, a single product (it’s a photo sharing app), and exactly zero dollars in revenue. Why spend a billion dollars on a company that has no revenue? Here is why:
As I’ve said before, the future is mobile. This is not some next generation prediction – it is happening NOW. We have officially hit the turning point in the US, with over half of us now owning smartphones (vs. dumb phones that do not have email or web browsing). Worldwide, smartphone sales and use are unprecedented, far eclipsing radio’s growth in the 1920s and 1930s, television’s in the 1950s and early 1960s and PC’s in the 1980s.
Why do you think Google gives away its Android software to hardware companies? Google knows the future is mobile and it is doing everything it can to be a major player. And it’s working. By one account, 700,000 Android phones are activated each day (according to TruthDive). Google’s mobile ad revenues are expected to more than double from an estimated $2.5 billion last year to $5.8 billion in 2012, and $10 billion estimated for 2013 (per Cowen analyst Jim Friedland).
Instagram accumulated 30 million passionate members – even though it was only available on the iPhone. Less than a week after launching on Android phones, it quickly added 5 million members, which is when Facebook jumped in to buy it.
Facebook is smart enough to know the future is mobile and they also have enough critical self-awareness to recognize that mobile is an area where they have significant weakness. More and more of their users are accessing Facebook on smartphones, but the company readily admits in their IPO filing that its smartphone app’s inability to show ads or contribute “any meaningful revenue” continues to be a concern. When you cannot monetize an incredible driver of growth like mobile, it is time for something drastic – thus the Instagram acquisition.
So if the future is mobile, what does that mean? Well, it most certainly means that advertising is going to shift to mobile as well, because that is where the eyeballs are, and users have significantly higher engagement with their mobile device. Mobile advertising is estimated to grow exponentially in the coming years. According to one estimate, the ad revenue earned through mobile sites and app advertising is expected to rise to $20.5 billion by 2015.
What does all this have to do with the market research industry? I recently met with a very senior market research leader in a Fortune 500 company. He lamented that while he has the tools to track traditional messaging platforms, such as TV for example, he felt as if he could not accurately measure the newer platforms, such as digital, social, and mobile.
Unfortunately, I’d have to agree. As an industry, we have some pretty good “old-school” tools, such as brand tracking, and the like. But these methods increasingly feel outdated in a mobile world. The future belongs to the innovative market research companies that can figure out how to accurately measure digital, mobile and social, in addition to the traditional mediums. The companies that come out with breakthrough methodologies and brand frameworks suitable for the times we are living in, will reap the benefits.
John Chambers recently remarked that since 1995, when he became CEO of Cisco, 87% of the companies on the Fortune 500 are off the list. The implication is clear – you either innovate or die on the vine. The market research leaders of the future are those companies that can innovate and create tools to measure the new platforms that are the growth engine of tomorrow.