Mark Zuckerberg and the other people who run Facebook are neither stupid nor insane. Nor are they known for reckless spending. So why is Facebook dishing out $1 billion to acquire Instagram, a company with 13 employees that generates zero dollars in revenue from a mobile photo-sharing app? The answer: Facebook hasn’t been able to develop a decent mobile application, while Instagram makes one of the most popular apps on the iPhone and Android platforms.
But lost in all the exclamations was the larger significance of the deal, which is that the Web is now moribund. The action has moved to the mobile space, now so important that Facebook, the last great company designed for the desktop Internet, was willing to spend a billion to avoid missing out.
Could Facebook already be in danger of becoming obsolete? Back in 2004, when Zuckerberg hacked together the first version of the site in his dorm room, the world looked very different. Computing centered around PCs. The Internet was all about websites. Then came the iPhone and Android, and today the only reason anyone creates a website is to promote a cool new mobile app.
There are a billion smartphones in the world. Soon they will outnumber PCs. Within the next decade, virtually all mobile phones will be smartphones: 6 billion people will have a constant connection to the Internet. Remember the “$100 laptop” that some do-gooders at MIT hoped would change the world? Well, it arrived, as a cool little smartphone with a 4-inch screen.
Facebook’s failure in mobile is yet another example of the “innovator’s dilemma,” the notion first put forth by Harvard professor Clayton Christensen to explain why once-dominant companies fail to adapt to new tech waves, because they’re too busy focusing on the old world to embrace the future. Zuckerberg apparently doesn’t intend to let this happen to Facebook. And while $1 billion might seem crazy, keep in mind that Facebook is about to go public with an equally nutty valuation of $100 billion. A small price to pay to avoid extinction.