By now you have surely heard that Facebook has acquired Instagram, a photo-sharing app for the iPhone, and now Android. You may have also heard it's rumored to have spent $1 billion on it. And if you're anything like me (Lord, save you!), you may also be shaking your head with sorrow and confusion.
To be sure, I like Instagram a lot. It gives me another reason to think creatively. I follow a small group of actual real-life (RL) friends and I enjoy seeing what they share throughout the day. And I've had fun using its photo filters to change the views of my keys, sink, bathroom cabinet, and coworkers. Good times!
Are those good times worth $1 billion, though? No. Of course not.
Let's go over some statistics: Instagram claims over 30 million registered users. It's a free app. It isn't ad-supported. It has no revenue stream at all, in fact. Since it launched in 2010, it's raised $57 million, which valued the company at $500 million.
Even $500 million seems way too high for a startup with no business model. Yet, somehow, Facebook has now plunked down double that to acquire it. Why?
There are plenty of theories and justifications floating around. Some, like BusinessWeek, suggest it's not a big deal for Facebook to spend $1 billion (how nice), making this a strategic move by Zuckerberg to acquire an audience. Om Malik at GigaOm chalks it up to Zuckerberg's fear of Instagram, a service that was able to do mobile-photo sharing in an attractive way that Facebook couldn't. As Malik writes:
It has created a platform built on emotion. It created not a social network, but instead built a beautiful social platform of shared experiences. Facebook and Instagram are two distinct companies with two distinct personalities. Instagram has what Facebook craves - passionate community.
All of that may be true. But it's still a reckless purchase, and it's something to take note of as Facebook prepares to go public.
Zuckerberg goes out of his way in his announcement about the acquisition to say that Facebook doesn't plan to do "many more" of these types of major acquisitions. (Read: Don't worry, investors, we won't continue to be this careless with our money.) But should we take his word for it? Or does this acquisition just prove that Zuckerberg will spend recklessly when he's fearful of the competition, and when he doesn't think his own engineers can build something better?
Furthermore, Zuckerberg may have purchased a "passionate community," as Malik says, but that passion may begin to dissipate under Facebook's rule. (The New York Times today already pointed out a series of posts from users planning to quit Instagram now that it's Facebook-owned.)
What's most disappointing of all, though, isn't that Facebook is irresponsible. This much we knew. It's that all of these years after the dot-com bubble this pattern of reckless spending continues. One overvalued company buys another, and so on and so forth, and no one is being held accountable for their true ability to establish business models and earn actual money.
Instagram is a lovely service, and its founders are now multi-millionaires. So good for them. But it's simply delusional that a two-year-old company with no business model should be worth a billion dollars, and it highlights the fact that the tech industry hasn't learned its lesson.
All in all, my message to Facebook and Silicon Valley can best and most appropriately be summed up as follows:
I would suggest that back in the days when $1 Billion was "real money" yes...the whole DotCom scene in 2000 was very top heavy. It took a lot of money to build a start up -- offices, LANs, server rooms, $2000 computers, data centers...so these were very volatile bets with big money.
What I'm saying is that in the last ten years, the large increase in the money supply leads to there being a really big pool of dollars...so large that a $1 Billion purchase is like a drop of rain in a thunderstorm.
Another thought:
Think of all the agony people spend settting up "crowdsourcing" sites to fund startups, arts projects, independent movies.
Well, Mega-Millions leaves all those crowdsourcing sites in the dust! It's nearly impossible to get people to press that PayPal button for a blog even if the price is $5. Yet somehow, Mega-Millions got nearly all of America to crowdsource for a lottery.
So how about this -- the Start Up Lottery. Instead of winning the $500 million, we would use it fund 500 startups...each start up if successful would have to pay back the initial investment AND a percentage of its stock and profits.
Imagine if just one of those companies "goes Apple" and takes off. Everyone becomes a winner!
When you think of a world where a $1 lottery ticket can return a half billion prize, and where billionaires seem to be sprouting like leaves on a tree, one wonders whether it's really that big a deal since maybe there was enough there to justify a billion. From the standpoint of people in that strata, a billion is pocket change...irrelevent...average.
I agree with you on the statement Nicole "Plan on" can mean a lot of things, both postive and negative. I wouldn't be also surprise if Instagram started having ads
@jchua: The word, for right now at least, is that it will continue to allow for this. According to Mark Z's blog:
"We plan on keeping features like the ability to post to other social networks, the ability to not share your Instagrams on Facebook if you want, and the ability to have followers and follow people separately from your friends on Facebook."
"Plan on" is a little too wishy washy for my taste, so I think we have to see what actually happens in time. Once it becomes mandatory for Instagram photos to appear on Facebook, I am through with the service.
I don't understand either. I certainly get that Facebook can make its money back...but that surely can't be the point of the acquisition. For a low price tag, it might have been worthwhile, but I just don't see the billion dollar value.
With this acquisition, it should be interesting to see how Facebook will handle other social media sites who are currently using Instagram's API such as Foursquare and Twitter. Will they continue these other social media sites to use Instagram or will they limit the capabilities and usage
What I mean by mailing list is that FB is buying more info about some customers they know a little about already and some customers they didn't know at all. They're buying information.
The bet is that information and loyalty can be converted into dollars at some point.
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