Facebook has taken a big step - both financially and strategically - toward solving its "mobile problem" with a $1 billion acquisition of Instagram, a photo sharing app that's popular with users of mobile devices.
Facebook, like Google and Apple, knows where the action is these days - in mobile apps.
By acquiring Instagram, the social media giant has added a new, important component to a mobile strategy that hasn't made money and lagged behind its Silicon Valley competitors.
The eye-catching $1 billion price tag says it all. Facebook is apparently willing to pay mega bucks for mobile tech expertise it so badly needs.
It's no secret that Facebook sees its future as mobile. When filing for its initial public offering (IPO) planned this year, the company revealed it sees the mobile market as its number one priority. And Facebook founder, Mark Zuckerberg, thinks Instagram's mobile expertise will help.
"We will try to learn from Instagram's experience to build similar features into our other products," Zuckerberg said in a statement.
Instagram represents a new generation of Web companies that primarily develop applications for mobile devices, like smartphones, iPads and tablet computers. Their often small teams are not full of "repurposed" Web programmers, but of engineers developing services for devices held in the hand - not stuck to a desktop.
Need to refine mobile experience
Facebook's highly popular social media service is still mostly accessed via desktop computers and laptops.
Some experts say that’s because the company has failed to refine its smartphone and tablet experience. Its mobile apps are criticized for being buggy, slow, difficult to navigate, and “less elegant” than those from the competition, like Instagram.
The small Menlo Park startup offers a simple but clever photo sharing service, developed by former Standford University students, Kevin Systeom and Mike Krieger.
At the start of April, Instagram made its mobile app available for smartphones running Google's Android operating system, massively expanding the market share it had already won via the iPhone.
One million Android users installed the mobile app on the first day of its release. In total, more than 30 million people have downloaded the app - in just two years on the market.
Clearly, mobile is the next battlefront for Facebook and the other Web giants. That's where the growth is.
Smartphones already have the computing power of PCs used in the 1990s, with penetration rates in Europe between 30 and 40 percent. That figure is expected to double in the next couple of years, according to the market research firm, CurrentAnalysis.
Instagram could be the first of other possible "acq-hire" acquisitions for Facebook - rival firms that it buys for the talent as the Web company hustles to become a heavyweight in the mobile arena.
Analyst Emma Mohr-McClune with CurrentAnalysis notes that Facebook has already developed partnerships with carriers, such as Vodafone and more recently Orange, to develop and market "Facebook-branded and oriented" phones that offer one-click access to its social media service.
But she says the company should have done more - sooner.
"What's really missing is a top-down approach - an operating system - [like the one] Google recognized and executed a few years ago," Mohr-McClune told DW. "This would have been a great move a couple of years ago, but it will be a very difficult move today."
Mohr-McClune sees huge advantages for a Web company like Facebook to have its own operating system.
"Google is using Android to leverage its services," Mohr-McClune said. "Phones with the Android operating system come hardwired with services. Facebook will only be an overlay."
Not all analysts agree.
"An operating system is not necessary for a content provider and may even be a disadvantage," Charlotte Miller with Juniper Research, wrote in an e-mail to DW.
"The user base is an essential component of a social network and the best way of increasing it is to ensure that the service is compatible with as many devices as possible. Competing with handset and operating system vendors is not a good strategy for this," said Miller.
There is also the view that Facebook bought Instagram to stop others doing the same.
"The move took away the prospect of Google or another rival acquiring Instagram off the table," analyst Tim Shepherd with Canalys told DW. "And at the same time it gave Facebook the opportunity to take ownership of a popular service and integrate it into its growing mobile platform."
So, don't expect to see Facebook jump onto the operating system wagon anytime soon, if at all, or buy each and every company offering a competitive service. But, by the same token, don't be surprised to see more deals follow Instagram as Facebook barrels into mobile headfirst.
Author: John Blau
Editor: Zulfikar Abbany