April 10, 2012 1

Defense Against the Dark Arts (of Disruption): the Instagram Acquisition

By in Business School, Technology, Thoughts

 

In an earlier post (“The Fall of Facebook…”), I began an analysis of reasons Facebook and other digital media giants may eventually fall using the disruption framework pioneered by my Harvard Business School professor (and nicest guy in the universe) Clay Christensen.  I said that there were many users who were being over-served by Facebook’s continually evolving product which opens the door for those users to be attracted to the simpler, more streamlined, focused offerings of low-end disruptors.

Enter Instagram.  Instagram focused on making an incredible photo product that allowed users to simply take and share beautiful photos, which began attracting users (many if not all existing FB users) at an incredible pace.  By April 2012, they had 30+MM users adding more than 50k users a day.  Instagram most certainly had been on Facebook’s radar for some time given that photos is such an important part of the FB experience so why didn’t we see Facebook competing with Instagram earlier?   Many people scoff at the acquisition and say Facebook should have competed; they should have gotten 13 stud engineers and worked on their mobile photo product and come up with something to cater to users who were flocking to Instagram.  Students of disruption will tell you, however, that this is near impossible for an incumbent like Facebook to do.  An incumbent will find it difficult to come up with a new product offering at the low end because their systems, processes, and infrastructure are already geared towards optimizing for customers at the high-end of the spectrum where their margins are highest.  In the context of Facebook, these are the users that are spending 2 hours a day on Facebook, updating statuses, commenting, poking friends, scheduling events, playing games, AND viewing photos.  Any new product Facebook develops has to be integrated into this complicated product platform which is the exact opposite of the draw that the streamlined Instagram product provides: an app for simply taking and viewing beautiful photos.  So what then could Facebook do? While we can debate the $1B sticker price, Facebook made the right move.  The only defense against the dark art of disruption for an incumbent is acquisition.  They had to acquire or else watch the disruptor innovate at a faster, more efficient pace and risk being overtaken in the end much like the seminal disruption examples of disk drives and digital photography.

 

While I applaud the strategic acquisition of Instagram, it’s important to note that the fight for Facebook is not over.  There are other competitors playing at the low end of social networking that will have to be acquired let’s take a quick look at a few.

A product focused specifically on “likes” and viewing other “likes”.  A dead simple idea but one that has already allowed it to grow to the #3 social network.

Looks to focus on sharing things with your closest friends.  Streamlined for a network of 200 “real” friends (easy to share everything because you don’t have to question whether or not you want one of your 1000 “friends” to see it).

A little late, but Facebook should have been more serious about acquiring this low end disruptor which focuses on small text updates and nothing else

 

What about other areas for low-end competition against Facebook?  I’m looking for great products to come out for events and a simpler version of Path (product that focuses on connecting your closest friends). Would love to hear what other people think about biggest opportunities to compete with Facebook.

 

 

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One Response to “Defense Against the Dark Arts (of Disruption): the Instagram Acquisition”

  1. […] This is exactly where I think Facebook and other major digital media products will have the most likelihood of being challenged.  Potential competitors cannot immediately produce a more feature filled product.  They can, however, produce a simpler, more streamlined, more narrowly focused product that serves the bottom of the market by competing on convenience and ease of use.  Once they are able to get this foothold, they will be able to quickly pick up speed and innovate more nimbly than the incumbents. Eventually, this ends with the challenger overtaking the incumbents unless they are taken out in a defensive acquisition. […]

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