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:
— Nicole Ferraro , Editor in Chief, Internet Evolution