Breakingviews - Facebook at risk of smothering its golden goose

Silhouettes of mobile users are seen next to a screen projection of Instagram logo in this picture illustration taken March 28, 2018. REUTERS/Dado Ruvic

NEW YORK (Reuters Breakingviews) - Instagram is Facebook’s golden goose – and it runs a real risk of being smothered. The departure of the photo-sharing app’s founders after six years as part of Mark Zuckerberg’s social network isn’t worrying on its own. But Instagram could suffer if too closely identified with its parent, and right now its growth is one of the $480 billion Facebook’s best features.

Zuckerberg’s $1 billion purchase of Instagram in 2012 was one of his smartest moves. Founders Kevin Systrom, who served as chief executive, and Mike Krieger, the chief technical officer, tapped into the social network’s vast ad platform and sales force to help their creation flourish without being associated with the larger machine. As Facebook has battled controversy about how it uses data, Instagram users have remained mostly unfazed. A survey from the tech site The Verge found that 60 percent of respondents were unaware of Instagram’s parent.

The arrangement benefited Instagram nicely. Monthly active users now stand at more than 1 billion. And while Facebook doesn’t break out revenue for Instagram, eMarketer reckons it will bring in $8 billion in ad sales this year, more than four times the haul in 2016. Breakingviews has previously calculated that Instagram could be worth more than $80 billion as a standalone company.

Meanwhile, Facebook’s own charms are waning. User growth in its core platform has stalled in Europe, Canada and the United States. Evidence Russia used the platform to interfere with the 2016 U.S. presidential election has eroded its appeal further, and regulators around the world are investigating the firm from multiple angles. A series of top level executives have decamped. And Facebook has lost over $150 billion of market capitalization since admitting this summer that revenue growth is slowing.

It’s understandable if Zuckerberg wants to squeeze more golden eggs from Instagram – integrating the two businesses more closely would help do that. If he’s too aggressive in monetizing users and their data, he could alienate consumers and regulators, just as has happened with Facebook’s core business. The Instagram brand is hugely valuable – it would be a shame if a growth-starved owner inadvertently wrung its neck.


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