It's been said that "data is the new oil". The immense stores of Personal Information gifted to Facebook, Google et al by their users are like crude oil reserves: raw material to be tapped, refined, processed and value-added.
[ Update 8 Dec 2012: Some have poo-poohed the comparison with crude oil, including the New York Times' Jer Thorp. No metaphor is ever complete, and this one might distract some people, but the idea is not meant to be about fossil fuels and finite resources. Rather it alludes to the undifferentiated nature of raw data and the high tech ways in which Big Data is refined to create wondrous new products. I like the historical and political context of the oil metaphor too. Right now we are at a historical point comparable to that of the Black Gold prospectors of the 1800s; new supply chains and business models are being devised to exploit this new bounty. The parallels with the oil industry remind us that Big Data is Big Business! ]
I'm especially interested in photo data, and the rapid evolution of tools for monetising it. These tools range from embedded metadata in the uploded photos, through to increasingly sophisticated object recognition and facial recognition algorithms.
Image analysis can extract place names and product names from photos, and recognise objects. It can re-identify faces using biometric templates that users have helpfully created by tagging their friends in entirely unrelated images. Image analysis lets social media companies work out what you're doing, when and where, and who you're doing it with. If Facebook can work out from a photo that you're enjoying a coffee at a recognisable retail outlet, they don't need you to expressly "Like" it. Nor do you have to actively check in to the cafe when most phones tag their photos with geolocation data. Instead, Facebook will automatically file away another little bit of Personal Information, to be melded into the amazingly rich picture they're relentlessly building up.
The ability to extract value from photo data defines a new black-gold rush. Like petroleum engineering, Image Analysis is high tech stuff. There is extraordinary R&D going on in face recognition and object recognition, and the "infomopolies" like Apple, Google and Facebook pay big bucks for IP and startups in this space.
I think there is only one way to look at Facebook's acquisition of Instagram. With 250 million new pictures being added everyday, Instagram is like an undeveloped crude oil field. As such, a billion dollars seems like a bargain.
So Facebook's core business isn't all of a sudden photo sharing. It always was and always will be PI refining.