Facebook-Instagram: Here Comes the Flood

NEW YORK (TheStreet) -- "Kodak Goes Bankrupt and Instagram is worth a Billion Dollars. 2012, y'all"

That was a tweet from @benhjacobs that I retweeted Monday and immediately got hundreds of retweets from my followers.

For some reason, it seemed to capture the sense of awe from many over the significant milestone.

But it also gets at something else that's amazing in this story. How a small little photo application can be worth so much more -- in such a short time -- compared to an American icon. It says just how important "mobile" is in the business world today.

Monday's acquisition of Instagram by Facebook will have no immediate impact on Facebook's ability to make money from mobile because Instagram itself has no revenue and no plan to charge users. At the moment, Facebook loses money every time one of its users goes through the mobile app instead of the main Web site.

Instagram was the first mobile-only application I recall seeing a couple of years ago. And up until last week, there was only an iOS version of Instagram for Apple(AAPL) devices.

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Instagram has only been around for two years. It has only 13 employees. Yet it is track to 50 million users. This is a company that's virtually needed no capital to build itself.

Of course, skeptics will ask about the revenue model for Instagram, but that's not really relevant.

What we're likely to see in the coming months is a flood of new mobile-only application start-ups. These companies will focus on some particular niche area and try to build up users. If they follow Instagram's lead, they will start in iOS because of one consistent operating system and the benefits of a favorable revenue share for app developers from Apple.

Will any of these apps be successful? It sure won't cost a lot of money to find out. Much will be thrown at the wall. Some will work and some won't.

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Public market investors won't have the chance to invest in these pure-play mobile app companies for a while, so let's think of some companies that are public which should be able to remake themselves as a mobile-only type of app.

Yelp(YELP): Yelp saw a big jump in its stock on Monday afternoon after everyone digested the Facebook-Instagram news. Perhaps more than any other recent IPO, Yelp is perfectly situated for this big secular shift from PC desktops to mobile. As Steve Jobs said a couple of years ago, people don't "Google" on their mobile devices, they use Yelp. They are seeking to get instant information customized to their mobile device. Yelp offers that information much better than Google.

LinkedIn (LNKD): Even though LinkedIn doesn't make money in mobile, its service becomes much more popular as the use of mobile proliferates. They make money from ads and from helping companies find people. The more their users like the site, the more attractive the service becomes for companies trying to hire them. More LinkedIn users are accessing the service from their mobile devices throughout the day. CEO Jeff Weiner confirmed this during the last earnings call. Unlike Facebook, LinkedIn doesn't lose money every time one of its users accesses its site from a mobile device.

What about Groupon(GRPN)?
This is still up in the air. Groupon's mobile play is certainly going to be Groupon Now. However, that has yet to really be rolled out. At the moment, Groupon is still a Web-based sign-up service. Mobile shouldn't hurt them as much as it hurts Facebook, because Groupon isn't an ad-dependent model.
Facebook does face a major challenge with the shift to mobile. They are taking out a mobile-only competitor by acquiring Instagram but this doesn't help Facebook make money from mobile. They still need to determine how to do it. Stuffing ads into people's news feeds is probably not the right answer.
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Google has the most to lose from the shift to mobile, because they make 96% of their revenue from the PC-based desktop search world. However, like Facebook, they have lots of cash to do deals with. So, expect them to compete with Facebook to take out hot mobile services such as Pinterest, Path, Twitter, Evernote and Foursquare. But, like Facebook, these deals won't do anything for Google's market cap.

Eric Jackson

04/10/12 - 08:06 AM EDT