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TheStreet Open House

Facebook Bought Instagram for Good Reason (Think Amazon!)

Stocks in this article: FBAMZN

By claiming Instagram and Camera as its own, Facebook might block another company from launching a competitive service. Even if somebody else does, Facebook will likely have secured a foothold in the area.

If a Facebook user leaves the site and heads over to Instagram, assuming it remains independent, the service still hangs under the Facebook umbrella.

Whatever revenue Instagram ends up producing, it's Facebook's. The company also acquires one of the fastest growing social media sites, flush with all types of talent.

Next Move

A billion-dollar investment today could end up paying for itself several times over. Not only does Facebook gain dominance in the photo-sharing space (I guess that's what we call it?), but the Instagram/Camera combo creates amazing synergies with present and future iterations of the site. Expect more acquisitions in a similar vein.

If I'm Facebook, my next move is quite clear -- I take out foursquare before somebody else does. Like Instagram (assuming this is the plan, and I think it should be), I run the dynamic "check-in" social network independently as well. Can you see where this is going?

Facebook is building an Amazon.com (AMZN) type of ecosystem. Call it a ubiquitous network. One that permeates multiple facets of your life and our collective culture. It's powerful. And, frankly, given the relative lack of competition in the social space, the connected platform Facebook builds out could end up, over the long haul, being more prolific than Amazon's. And this comes from an ardent AMZN bull.

Instagram powered by Facebook. foursquare powered by Facebook. That's the path to roll down. Observe where Facebook users go after using Facebook and make the destination part of the cult.

Folks who lack vision rip and ridicule Facebook's acquisition of Instagram. While he might not have a carbon copy of my idea in mind, Mark Zuckerberg is certainly thinking along similar lines. He changed the world from his freaking dorm room. He's not, all of a sudden, some dolt who just blew a billion bucks for no good reason.

Lure of Eyeballs

Call sites like Facebook, Instagram and foursquare time-wasters and fads all you want. That misses the point. The "boob tube" did a pretty good job of building out an impenetrable mega-billion dollar advertising juggernaut that has stood several tests of time. That's exactly what is happening in the social/mobile space. Companies like Facebook are building out dominant ecosystems just like Amazon did in retail/e-commerce.

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