Instagram, Kodak and the end of innovation

Facebook’s acquisition of the social mobile photo-sharing application Instagram for $1 billion reveals two fundamental realities. First, that despite being the darling child of the media – who keep trumpeting its youthful uniqueness – Facebook is simply another large enterprise that is slow to innovate and is driven by the inexorable logic of age-old capitalist economics. Second, the deal truly marks the end of the age of innovation; the purchase of Instagram can be contrasted to the fact that Kodak, the company that pioneered photography from the end of the nineteenth century, went into receivership earlier this year. The contrasting fates of two photographic-based companies speak volumes about the world we now live in.

It is a remarkable phenomenon and an expression of the ahistorical, egocentric media world we now occupy, but whenever one of Silicon Valley’s digital or internet-related companies makes a headline-grabbing acquisition or announcement, the world’s media – closely followed by the blogosphere and Twitterati – go into speculative meltdown. What will the deal mean for the users of Instagram who have not signed up to Facebook? What about their privacy? Will Facebook destroy Instagram’s unique application? (More on this below). What is Facebook’s founder Mark Zuckerberg really thinking? Etc etc. In other words, a lot of hot air, emotion and a proliferation of tweets, blog posts and comments, but little analysis.

It’s the economics, stupid

There are two fundamental reasons why Facebook paid $1 billion to a startup with 13 employees and 30million customers. Both reasons centre upon the inexorable logic of Facebook’s business model and the laws of competition.

First, the acquisition is less about better integrating Instagram’s services into the world’s biggest social network (which Facebook already does quite nicely) and more about becoming a publicly traded behemoth. Facebook’s pending initial public offering (IPO) means that it needs to grow to keep investors happy. If it can’t do so by adding new users or boosting revenue streams, it will do so by eating its rivals. The youthful Mark Zuckerberg – yes, the one that couldn’t get laid at Harvard and started Facebook – has revealed that he has a very old head on his shoulders and is acting according to the laws of market economics identified by Adam Smith and later exposed by Karl Marx in his seminal Das Kapital. Facebook, like any publicly traded company, will have to accumulate wealth through the concentration and centralisation of capital. Digital media must ultimately follow the same laws of economics as steel or coal or any other part of the economy. This acquisition reveals that Facebook has already changed into what everyone is speculating it might become – a giant that needs to grow revenues and which is driven by its quarterly results.

This brings us to the second reason for the acquisition, which also reveals how Facebook itself has lost any innovating momentum it once boasted of. Photo-sharing has always been a core part of Facebook. Remember, the service was spawned from a website – Facemash – that allowed users to rank the attractiveness of Harvard students. Last summer, Facebook reported that its site held 100 billion photos. Facebook users upload six billion photos every two months. This is remarkable. So how did a service like Instagram ever come into existence? This should have been Facebook’s photo-application all along. Facebook has more than 400million mobile users, but its mobile photo application is subpar. Once Instagram was fully integrated with Facebook, it became even more obvious that Facebook was way behind.

The fact that Facebook could not develop an ‘Instagram’ internally, despite the centrality of photo-sharing to its service, speaks volumes about Facebook’s capacity to innovate. Facebook has ‘failed’ where others have succeeded. The proliferation of new applications centred around images – like Pinterest, Tumblr and Instagram – shows how important self-expression through images has become. Acquiring Instagram was a smart strategic move. While customer acquisition is a motivating force for Facebook (Instagram attracted 30million users with its iOS apps alone while a million joined on the day of its Android application launch), it is the deeper functionality and data acquisition of Instagram, which feed Facebook’s business model, that is the key.

Instagram adds some important new pieces of data to Facebook that will help to drive its increasingly targeted advertising revenues. Instagram will allow Facebook to see who its customers like seeing photos from. That gets Facebook a dramatically better photo ‘graph’ and keeps it ahead of rival social-networking service Google+, which wooed photographers strongly in its first seven months on the market. Facebook will also know where you are when you shoot the photo. It shows a range of passions that you have. People who post photos reveal their real likes and dislikes. Facebook’s databases need this information to optimise the media it will bring to customers. This data is gold dust that companies wishing to sell their products will pay handsomely for. More fundamentally, Instagram will let Facebook develop a new kind of Open Graph advertising which will enable it to offer mobile developers a lot of money in return for opening their apps up to Open Graph. Venture capitalists in Silicon Valley are salivating over this new potential revenue stream. This could result in huge revenues for Facebook and member companies.

It should be clear then that Facebook’s acquisition of Instagram has been a remarkable strategic move. It shows that it has already begun to act like a trading behemoth despite being the darling child of the ‘digirati’. But is also reveals how Facebook has been flattered rather than subjected to any real critical scrutiny. The acquisition reveals that the company has failed to innovate in a core area of its business. You may argue that given its large reserves, this is not a real problem because it can buy-in the innovation they need. But this raises a more fundamental issue of the content of innovation today.

The end of innovation

Part of Instagram’s real appeal – apart from ease of use, which should not be underestimated – is the fact that the application makes a virtue out of nostalgia. The filters at the heart of Instagram’s application allow the user to create pictures that look like early Polaroid pictures, or even older. I have nothing against old pictures. But using digital imaging to create pictures that look like they were taken with your grandfather’s 1930s camera, while technically remarkable, is somewhat worrying. That this is what is driving usage speaks volumes about the current cultural moment: self-obsession and self-expression through images that hark back to the technological past.

While Instagram has received $1 billion in investment, Kodak – the pioneering and innovative company that brought imaging to consumers, businesses, medicine, space exploration and the advancement of human knowledge – has gone into receivership, which sums up the dire innovation state we are really in.

In 1888, George Eastman – the creator of Kodak, with the slogan ‘you press the button, we do the rest’ – put the first simple camera into the hands of a world of consumers. In so doing, he made a cumbersome and complicated process easy to use and accessible to nearly everyone. Since that time, the Eastman Kodak Company has led the way with an abundance of new products and processes to make photography simpler, more useful and more enjoyable. Kodak was about much more than photography for consumers, though. Kodak pioneered the use of images in a variety of leisure pursuits, commercial, entertainment and scientific applications. Its reach increasingly involved the use of technology to combine images and information, creating the potential to change profoundly how people and businesses communicate.

As early as 1896, Kodak introduced the first capture medium – a photographic paper – designed specifically for x-ray image capture. Further innovative processes improved both the quality and accessibility of x-ray images or radiographs. In 1956, Kodak’s X-Omat processor was able to produce finished radiographs in only six minutes; less than a decade later, that time had been cut to a mere 90 seconds. Through acquisition of Imation’s medical-imaging business in 1998, Kodak incorporated dry-processed films into its portfolio. Such dry systems print film images from digital medical-imaging sources such as computed tomography (CT) and magnetic resonance imagers (MRI).

Microfilm developed in the 1920s transformed the banking industry, insurance records, libraries, government agencies and transportation. Kodak was also a pioneer in printing, scanning and offset media. Kodak teamed with NASA on space science and remote-sensing missions for more than 40 years. When John Glenn became the first American to orbit the earth, Kodak film recorded his reactions to travelling through space at 17,400 miles per hour. In the mid-Sixties, NASA launched a series of five Lunar Orbiter spacecraft that collectively photographed 99 per cent of the moon’s surface in preparation for an Apollo moon landing. Each carried an ingenious photographic system, designed and built by Kodak. The system took photographs, processed and scanned the film, and converted imagery into a continuous video signal for pickup by Kodak-built receivers on Earth. Kodak technology also went along on Apollo 11 with the first astronauts to walk on the moon. A special stereoscopic colour camera built by Kodak enabled astronauts to photograph extreme close-ups of rocks, dust and minute features of the moon’s surface. Photos of the lunar soil taken by Neil Armstrong enabled scientists to see soil particles smaller than two one-thousandths of an inch.

Kodak is now history. Its technology and innovation have played a critical role in making the world more productive, in advancing human knowledge and making daily life more enjoyable. Instagram, on the other hand, can only boast of the latter. That a company with no revenues and one which plays upon nostalgia and self-absorbed consumption through images can attract $1 billion, while Kodak goes down the pan, is nothing to celebrate.

Facebook’s acquisition of Instagram reveals how conventional Facebook actually is and that it intends to take self-absorbed consumption into new realms. For those concerned about the future of innovation and society, it is Kodak’s demise, not Instagram’s rise, that should be toasted and remembered. In this case, some nostalgia would be a good thing. Not in terms of trying to create pictures that remind us of our youth, but in trying to remember what an age of innovation was really all about. Take a picture as you toast Kodak, and post it on Facebook. Who knows, it might spark a comment or two.

Dr Norman Lewis works on innovation networks and is a co-author of Big Potatoes: The London Manifesto for Innovation.