Is Facebook reminiscent of Polaroid?

1985: Polaroid wins its suit against Kodak

A descendant of Jewish immigrants joins Harvard; there, he thinks about a new technology, develops it, and drops out of college to found a company to exploit it. Mark Zuckerberg? No, Edwin H. Land, inventor of the polarized film and founder of Polaroid.

Land-Wheelwright (named after its two founders) was created in 1932 and renamed Polaroid in 1937. The first Polaroid camera was offered to the public in 1948, and propelled the runaway success of the Polaroid corporation.

Polaroid had invented a new product category: "instant photography", and maintained leadership of that category for a long time; in fact, it was the sole contender.

But then competitors entered the market, esp. Kodak who by the mid-seventies, had gained nearly 30 percent of the instant photography market.

Then what happened? In 1976, Polaroid filed suit against Kodak, alleging patent infringement; nine years later, it won, driving Kodak out of the market.

And of course, in 2001 Polaroid filed for bankruptcy and has since been a shadow of itself (then a shadow of a shadow).

2012: Facebook buys Instagram for $1 billion

Why did Facebook pay so much for a two-year-old startup with just 13 employees and zero revenues? Instagram's 30 million users don't seem to amount to much when compared to the 850 million active users of Facebook.

The conventional answer to that question seems to be that Facebook intends to keep the social space all to itself:

  1. A big part of the Facebook experience is about sharing pictures
  2. Instagram let users share pictures better than Facebook, and its growth was threatening Facebook's dominance
  3. If you can't beat them... have them join you

Will Oremus from Slate says as much about the acquisition:

Instagram may not be worth $1 billion to anyone else—indeed, it was valued at half that price just last week—but it's worth that and more to Facebook to head off a potential challenge to its core business. Let Google or Twitter or Pinterest buy Instagram, and suddenly they're great alternatives for sharing photos. And if there's one thing Mark Zuckerberg wants, it's to make sure there are no great alternatives to Facebook.

The problem with that line of thinking is that, contrary to popular wisdom, competition helps the leader because it helps grow the category. If you try to stifle competition you also suck air out of the category, and therefore hurt yourself (first and foremost). This is what Al and Laura Ries wrote about Polaroid suing Kodak out of their core market:

One of Polaroid's biggest mistakes was forcing Kodak out of the instant-photography market. Although it won a few millions in its lawsuit, Polaroid effectively removed a competitor that could have greatly expanded the market. (A Coke/Pepsi advertising war benefits both brands (...)[,] expands the consumer's interest in the cola category.)

The 22 Immutable Laws of Branding

Of course in the case of Facebook one might object that there may not be much to expand; but that's never true, even in the case of an already very dominant player:

  1. Even when the total number of users seems to have peaked, user engagement with the brand can always grow
  2. If you have to play defense, it's better to attack other competitive categories than spend energy or cash to reduce competition in your own category

If you guys were the inventors of Facebook, you'd have invented Facebook

Unsolicited advice is often preposterous—even more so coming from someone who didn't invent Facebook, and directed at the guy who did. But the question remains: what will the purchase of Instagram accomplish for Facebook?

I don't know if it will make much of a difference, positive or negative. But I do think it offers a window into Facebook's soul. It tells us Facebook is more like Polaroid than like Coca-Cola. They will spare no expense to make sure no one else has a chance of sharing the social space with them.

Sharing: the one thing Facebook will not do.

Wed, 11 Apr 2012 • permalink