The Network and the Photo App

Learning objectives

1. Analyse buying versus building when a network effect is forming around a rival.
2. Weigh the price of buying now against the cost of competing later.
3. Consider the costs a decision imposes on others, including competition and regulators.

Session plan

1. 0–5 min Read the situation, what is known and unknown, and the voices in the room. No discussion yet.
2. 5–13 min Each participant chooses an option on the case page, states a confidence and writes a one-line pre-mortem: if this choice fails, the most likely reason is…
3. 13–28 min Debate by option. Ask the group that would build its own features to explain why users would switch.
4. 28–33 min Reveal the outcome.
5. 33–50 min Discuss whether the decision was good for shareholders, for users and for competition, and why those answers might differ.
6. 50–60 min Transfer: participants identify a capability forming outside their organisation that would be cheaper to buy now than to fight later.

The case page records each participant’s choice, confidence and pre-mortem in their own browser, and scores the confidence once the outcome is revealed. Nothing is sent anywhere, so it can be used in any classroom.

The key facts on one page

• The network bought the app in April 2012 for about $1 billion in cash and stock.
• The app was kept running as a separate product and grew past a billion users.
• A regulator later challenged the purchase; a court ruled in 2025 that the regulator had not proved its case.

Where discussions go wrong

• Treating the price as obviously cheap. At the time it was widely seen as extravagant for a company without revenue.
• Leaving out the effect on competition, which is part of judging the decision in full.

The forces at work

• Watching a rival closely: Internal messages later released showed intense attention to the young app as a threat. Buying a rival before it can become a full competitor is a response to rivalry that changes the market itself.
• Network effects: Social apps grow more valuable as more people use them. A network that had already formed around photos on phones would be very hard to dislodge by building a copy.
• Buying instead of building: Building a rival product would take time and might never capture the same community. Buying acquired a position, users and a habit, that could not be built at any price.
• A choice with costs for others: What was strategically sound for the buyer reduced competition in social media, a cost borne by users and potential rivals. Regulators, years later, argued the purchase was anticompetitive; a court ultimately did not agree.

The lesson to carry out of the room When a network effect is forming around something you lack, the price of buying it now is usually lower than the price of competing with it later.

Pairs well with: The strategy question “Should we buy the company that threatens us?” and the essay on social media.