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Friday, August 24, 2012
by Michael Loatman
In April, Facebook announced it
would acquire Instagram–the creator of a popular photo-sharing
application–for a mix of cash and company stock then worth $1
The extremely high price tag for
Instagram was notable because it employed only about 13 employees
and did not have any revenue. Did Facebook offer a king's ransom to
prevent a potential rival competitor from emerging?
The Federal Trade Commission and the
Office of Fair Trading (OFT)–the United Kingdom's antitrust
regulator–recently scrutinized the deal. The OFT decided not to
challenge the deal on Aug. 14, and the FTC soon followed Aug.
The FTC did not provide a public
explanation for its decision, but the OFT released Aug. 22 its decision that explained it did not believe the deal would
lessen competition in photo-sharing apps or online brand
The OFT's decision said that
Facebook launched a photo-sharing app similar to Instagram in May.
Instagram, it concluded, faced much more competition from rival
third-party photo apps such as "Camera Awesome, Camera +, Flickr,
Hipstamatic, Path, and Pixable" than Facebook's camera app.
The OFT's decision then addressed
whether Facebook sought to acquire Instagram to remove a potential
rival social network. "It is likely that pre-merger Facebook was
aware of Instagram's growing user base: Instagram was Apple's App
of the Year in 2011 and had several high profile users (such as
Barack Obama)," the OFT said.
It added that the number of
Instagram users had grown from 1.4 million in January 2011 to 24
million in February 2012. Third parties explained to the OFT that
it would not have been difficult for Instagram to add social media
features to make it similar to Facebook.
Nonetheless, the OFT concluded the
evidence it reviewed showed Instagram was not "particularly well
placed to compete against Facebook in the short run." It also said
Google, Yahoo, and Microsoft currently provide strong competition
to Facebook for online brand advertising because the companies have
sites that gather user demographic and behavioral data.
The OFT also addressed whether a
combination of Facebook and Instagram could lead to Instagram users
only being allowed to upload to Facebook, or if rival photo-sharing
apps would be prevented from uploading to Facebook.
The U.K. regulator concluded neither
possibility was likely and only would lower the appeal of the
product of both companies.
Copyright 2012, The Bureau of
National Affairs, Inc.
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