Instagram Founders Quit
Fintech is widely seen as a disruptor of the traditional asset management industry with their heavy use of technology, low overhead and their millennial appeal. However, it remains to be seen if fintech firms can remain sustainable in the long run with their narrow focus on millennial clients.
Facebook has more than 2 billion monthly active users as of June 2017. Its popularity has led to prominent media coverage for the company, including significant scrutiny over privacy and the psychological effects it has on users.
Instagram is a photo-sharing mobile app that was created in 2010. In 2012, having gained about 30 million users, it was acquired by Facebook for $1 billion. At the time the purchase price was widely considered to be elevated but today is seen as a bargain for Facebook to own what could have been its biggest competitor. Supported by Facebook’s incredible infrastructure and technical expertise, Instagram has branched out into other lines of business, challenging Youtube and Snapchat in the process. Today, Instagram has over 1 billion users.
The founders of Instagram, Kevin Systrom and Mike Kreiger, are departing the Facebook-owned company. This news comes six months after the founders of Whatsapp departed and eighteen months after the founder of Oculus VR was founded, both owned by Facebook. Whatsapp is a messaging service and Oculus VR is involved in virtual reality products.
In March 2018, Facebook came under scrutiny for its links to political data mining company Cambridge Analytica. Cambridge University professor Aleksandr Kogan reportedly sold personal user information collected from 50 million Facebook users to Cambridge Analytica. This caused Facebook’s value to drop by $58 billion as users were outraged by the misuse of their data.
The founders of Instagram are said to have clashed with Mark Zuckerberg over concerns about data protection and privacy, especially in the wake of the Cambridge Analytica scandal. Additionally, Facebook is not growing at the desired rate, making the company more dependent on Instagram’s high-growth rate to propel the company forward.
Many of the recent scandals that plagued Facebook did not impact Instagram significantly which continued to experience a high rate of growth. However, as Facebook became more reliant on Instagram for company success, consumers have raised concerns about the excessive promotional material on the platform. In addition, Instagram is part of the growing conversation about smartphone addiction, raising more concerns about the app.
The departure of the founders does not inspire confidence in Facebook’s leadership. In addition, the multiple shake-ups at the other Facebook-owned companies indicate a period of turmoil for the company. This change could also affect Facebook’s ability to navigate ongoing and future scandals. Finally, Instagram could also face more challenges with maintaining its growth rate without its founders.
Our assessment is that the recent changes in management at Facebook’s subsidiary companies indicates the instability of the company, additionally affected by the recent spate of scandals in which it has been embroiled. We feel that without strong replacement for Instagram’s founders, the company will find it challenging to maintain its growth while expanding into other business lines. We feel that the instability also makes competing with heavyweights like Google and Youtube an added burden. We think it is essential that Facebook takes steps to mitigate this situation to recover quickly and efficiently.