Giant Social Media Platform Scrambling for Its Life

Earlier last week, news came about Snapchat refusing the $3 billion buy-out offer from Facebook. If you recall, April of last year, Instagram was bought for $1 billion by Facebook. During then, I remember thinking how could Facebook benefit from buying Instagram, an app that did not have an existing revenue model. The thought of Facebook incorporating ads into Instagram did come into my mind, but I still couldn’t digest the thought of it. Sure enough, after a year, there are Instagram ads now – at least in its early stages, as mentioned in my previous post. But now with Snapchat, I am more confused as to how Facebook can capitalize on Snapchat if it was successful in acquiring it.

I couldn’t really see putting ads on Snapchat would be effective given the nature of the app, which is that the video – once watched – is gone forever. Also, users also have the option of whether or not they want to view the video. There is a possibility that once users recognize that it is an ad, they would stop watching it. Given these reasons, I still couldn’t understand how Facebook can monetize Snapchat, just like Pooja. In her blog posts, she listed why she thinks Snapchat refused the offer. Initially, I agree with her points but later realized she was just looking at the buy-out from the same perspective I had, which was what synergies will be created from this acquisition.

It’s true that there so much misalignment in their positioning, but what is Facebook never planned on using or capitalizing on Snapchat? What if Facebook only wanted to get rid of the competition? Reading this article made me realize that maybe Facebook did just want to get rid of its threats. With more Facebook users switching to messaging and photo-sharing mobile apps, Facebook is desperate to keep its territory in the social media space. Spending $3 billion to keep its company afloat might not be such an unreasonable move for a $120 billion company to make.

Capitalizing on that $1B Acquisition

I can still remember learning about the news of Instagram being bought for $1 billion by Facebook last year and could not justify the amount spent for the buy out. That time, many saw Instagram as a platform that did not (previously) have a revenue model. Months following the acquisition, I recall having at least two notifications from Instagram about the coming of Instagram ads. My initial reaction was annoyance and maybe a hint of indifference. Probably not as forward-thinking as the people behind Facebook, I never really saw how Facebook could capitalize on Instagram through ads. Reading this article, however, made me have a different perspective of Instagram ad – I thought Instragram ads may not be so bad after all.

How these ads work (it seems like) is that these ads will appear on your newsfeed and/or on the popular page. Michael Kors, aside from GE, was one of the first few brands to try Instagram ads. From the article above, their Instagram account experienced tremendous growth in likes and number of followers. However, it was not surprising to find out that there were some negative comments (20%). Personally, I think this will just be a phase and that consumers will start getting used it to eventually. I actually do not mind having nice ad photos on my feed once in a whileA maximum of three ads evenly spread out on my feed would be something tolerable, if not appreciated, only if it is smart images and attractive content.

As mentioned by this article by Forbes, image-centric networks will see tremendous growth as visual content is becoming more critical in the success of online content strategy. That said, there is real potential for Instagram ads. Cost of the ads do not seem to be public yet, but based from the strong results of these first Instagram ads, it wouldn’t be surprising if its very costly. Should Facebook set strict but not entirely limiting guidelines (for the benefit of ad buyers) on what content should be on Instagram ads, then Instagram ads may just solve some of the challenges faced in online advertising.