Facebook acquires Instagram
facebook.com
facebook.com
Where's the money in Instagram? The content is practically worthless and their only real value is in their userbase. Even though I use the Instagram client, most of the time I see photos, they come through Twitter. So that also reinforces for me that any value is in the users and not the actual content, which is mostly crap.
I'm more convinced that we're in a 2nd bubble now more than ever.
Preventing Instagram from developing into something that has a negative effect on Facebook. It's a "keep your enemies closer" move.
Now to put the question in context if you have a small company that is worth, say $500,000, then 1% is $5000 you might spend that much (in cash alone yearly) as "insurance", say for property/casualty or liability. And you would pay that no matter what the business climate if you perceived a risk to your business, right?
But it could indicate a bubble simply because if the market is up people are more likely to overpay for anything because they feel very upbeat and enthusiastic about the future.
So paying a large number (and 1 billion is a large number and not trivial no matter how you slice it) would be more likely to happen in a bubble.
But there are to many variables in this that are not know to draw a definitive conclusion.
That said my feeling is we are in a period of irrational exuberance.
Whatever value Instagram has for Facebook, it probably has at least double that value for Google, who could buy it just as easily. By paying a premium and showing major interest first, Facebook preempted an opportunity for Google to get some traction in the social space. Very smart move.
For a fraction[1] of that they could have cloned the software pixel-by-pixel and weaved it in with facebook in a way that the original instagram couldn't.
I have trouble believing instagram was about to turn into an 1 billion dollar threat.
[1] Understatement of the month
It turns out what Google was buying was a chance to maintain their lead in how people were going to use their computers.
Facebook is now buying a chance to maintain their lead with how people are going to use their phones.
There's almost no room for that kind of content from a photo sharing system.
I agree. So far I've mostly dismissed talk of "the next bubble", but this pretty much solidifies it.
Of course no one knows when the bubble will burst, so I guess investors are making as much money as they can before it inevitably does burst. It's a classic case of the "greater fool theory" http://en.wikipedia.org/wiki/Greater_fool_theory
To me this just confirms that people who talk about bubbles now weren't here for the last real tech bubble.
In turn, Facebook, implicitly assumes that the greater fool from whom they will make money from this deal is the public who will buy shares when Facebook goes IPO. Because with $1 billion in profits for 2011, if the market values them at $100 billion, that will be a P/E ratio of 100. Even if they double their profit in 2012, their P/E ratio will still be 50, which is astronomical.
When people put huge money into things that have low value from a business fundamentals point of view, just because they think they can sell later on to someone else to make a huge profit, I think that's the very definition of a bubble.
If I buy a bathtub from a bathtub warehouse at a 50% markup am I the 'greater fool' or do I just like hot baths?
> Because with $1 billion in profits for 2011, if the market values them at $100 billion, that will be a P/E ratio of 100. Even if they double their profit in 2012, their P/E ratio will still be 50, which is astronomical.
And then if it doubles again it becomes 25, and then it becomes 12, and then it becomes 6. only 4 years away to Facebook being a blue chip stock - so all that the 100 PE ratio is telling you is that they do believe that revenue and income will grow pretty quickly over the next few years.
The last bubble got messy because public markets were being used as what private equity does today. The public was shouldering the risk profile of a big VC firm that filled in all the shitty deals.
Those are some BIG ifs. I'm going to contrast Google and Facebook to explain why I think Facebook is overvalued.
When Google was in it's fast growth phase, it could perhaps justify a P/E like what Facebook has now - because of the way in which Google makes money. For roughly 1 out of every 14 Google searches, a user clicks a Google ad. As the amount of people on the internet grows, that means the amount of searches grow, meaning the number of ad clicks grows in tandem. Even today, with all the smartphones and tablets and people from the BRICS coming online, Google only has a P/E of 21[1].
Now contrast that with the way in which Facebook makes money. Targeted ads. The revenue they generate doesn't grow in tandem with Facebook's userbase. Granted, the revenue goes up as companies chase the eyeballs, but it seems to be a mixed bag of results selling ads on Facebook, so some companies aren't going to get the results they want and will quit Facebook. People there don't go there primarily to look at products (completely different to many Google searches). And of course some companies will get great results, but the overall point is that there isn't a direct correlation between user growth and revenue growth.
Ah!, you say, but there are other ways for Facebook to make money (off the top of my head):
a) Premium celebrity pages (pay Facebook for a prominent page to get fans)
b) Somehow charge for user accounts, maybe for premium features
c) Selling user data to third parties
d) Zynga etc. profit sharing
e) Others
Maybe they could make some revenue from premium celebrity pages, but not enough to justify a 3-figure P/E, IMO. Charging for premium features would be highly controversial, if they did this it would be a sign of desperation and a complete departure from where they began. They probably will do some form of c at some stage (don't worry, your data is completely anonymised!) but users would probably abandon ship to competitors in droves if they did. They will continue to make money from social gaming, but it's fickle and short-lived, plus Zynga is trying to wean themselves off Facebook to grow their own revenue.
Overall I think they will continue to make billions from ad impressions and social gaming profit sharing, but nowhere near enough to justify a $100bn valuation IMHO. If they bow to Wall Street pressure and really try to squeeze their userbase data for every dime (you could call this 'doing a MySpace', i.e. shooting themselves in the foot), people will leave in droves to the next social hotspot. So it will be 'interesting' to see how they will justify the lofty valuation over the coming years.
This is no different than the real estate cycle in L.A. or South Florida a few years ago, when people would buy and sell condos based on market potential multiple times before the condo was even finished. It all works until someone down the line tries to cash in. It will work for FaceBook and Goldman Sachs, but a whole lot of consumer investors are going to get AOL'd in the long run.
But Google saw the potential in the usage stats. The YouTube search bar was the second most used search bar after theirs.
Similarly Facebook see the social engagement stats of Instagram being similar to their own.
In that it was a startup acquired by a big company? Yep.
> When Google bought YT it was a small team of people and a pretty nascent product that people really loved, and the usage numbers were out of control.
Like most startup acquisitions, the team size is relatively small and there is significant traction in the market with headroom to mature their footprint.
> They left the product mostly untouched and let it grow on its own. Though there was major criticism at the time, it is one of the best tech acquisitions of the past decade.
This is not going to be one of the best tech acquisitions of the next decade. YouTube helped to propel Google into content. It also helped to commoditise web video in a massive way: reminiscent of the way which Google commoditised search (YouTube is probably just short of being a byword for online video at this point).
Instagram is a photo service in a sea of other photo services. Photography has been around on the web in meaningful ways for a long time. Flickr lost out to Facebook in the community stakes, and Instagram is doing great in whatever-the-fuck market it's in (the share-to-my-twitter-followers market?), but this is not Google acquiring YouTube.
Bookmark this comment. See you in 2022.
You're mischaracterizing Instagram. It's not "a photo service," it's the photo service. 30M iOS users plus 1M new Android users in 12 hours.[0]
Instagram is the main mobile photo app. With this purchase, Facebook strengthens their mobile position the way Google strengthened their content position with YT. The acquisitions are very similar.
(edited for a stronger point)
[0]http://www.forbes.com/sites/anthonykosner/2012/04/07/instagr...
--does Android's Camera app have social sharing features?
--does it provide some kind of cloud-based sharing support?
I see the above, plus Instagram's 30M+ user base, as their main benefits.
Here's a screen shot of the sharing options shared via Dropbox.
It's a little faded because the screen shot button combo includes the back button on my phone... not the greatest design.
Instagram doesn't have more users than Facebook. Hell, it doesn't even have more users than Flickr (51m) or Photobucket (50m).
Instagram is a small part of the web photo ecosystem.
It's a very peculiar play by Facebook, and not at all comparable to Google & YouTube other than the fact that Google acquired YouTube, and Facebook acquired Instagram. Instagram represents a diversification of Facebook's offering, and one which says "it's cheaper for us to spend $1bn acquiring Instagram than it is to make a compelling mobile photo app to usurp them".
And to go further: I have a Flickr account, I have some Picasa galleries.. I rarely visit those sites except to upload a batch and then go elsewhere.
I use Instagram 5-10 times daily when in transit, on lunch, while watching TV, etc...
Facebook have got 721m users and all the data they need to constitute incredible market research. In twelve months if Facebook couldn't build an app which is competitive to Instagram, and get it installed with ~5.5% of their user-base, I'd be really fucking worried.
Also consider this: Twitter add "Photos" to their filtering options adjacent to "Connect" and "Discover". So you can just click a Photo button and see all your connections' photographs in a stream. Oops, they just went halfway towards creating most people's Instagram experience.
Damn reading comprehension. ;)
To go a step further, consider: Flickr is available on every device (computer or phone) with an internet connection . Instagram was iOS-exclusive until a week or two ago, and yet it managed to reach sixty percent of Flickr's user base size. That's astounding.
You don't expect Instagram to double its user base within a year? Maybe even more?
Being popular != being valuable.
To compare it with YouTube is a massive overstatement. YouTube still has ~65% market share. InstaGram didn't even have an app for Android until a week back. How is that even remotely close to YT's domination of the video space?
> we're committed to building and growing Instagram independently. Millions of people around the world love the Instagram app and the brand associated with it, and our goal is to help spread this app and brand to even more people.
Facebook has always integrated whatever it purchased (that I know of) very tightly into the core product, or just done an acqui-hire. Instead, they've taken what is arguably the best way to share photos and decided to keep it as a product that exists on its own.
This is a major strategy change for Facebook and speaks to something I have suspected for some time - they now understand that in order to continue spurring growth, they cannot just acquire and roll in every product. As the ecosystem starts to hit a long-term maturity cycle, other products that fulfill particular functions better will be key to maintaining dominance over the market as a whole.
Let's face it: G+ cannot topple Facebook (though it probably wasn't intended to anyway), Twitter is fairly specialized and Pinterest has come up with a new way to share that fits neatly with the other two. Instagram makes immense logic as a purchase for Facebook as they'll control one of the most important ways people share photos outside their product, neatly roping everyone that uses it right into the FB circle without feeling forced to do so.
Besides messaging and photos, I'm thinking that few things are left as halo products around Facebook. There's no reason for a "games" app - to me, at least - but there might be logic in acquiring something like Turntable.fm for music.
Instagram, in providing a photo sharing experience (at least) on par with Facebook's, spanning multiple "social platforms", facilitates user migration across these platforms. In the current context, any user migration between social platforms would (almost) inevitably dilute Facebook's share of user-time.
Thus, it seems reasonable for Facebook to acquire this possible avenue of departure and generally maintain its current state (i.e. Zuckerberg's statement is honest) while guiding future evolution of Instagram's product to subtly guide the flow of users along "Instagram Avenue" towards Facebook, rather than in its current unbiased direction (i.e. Zuckerberg's statement is disingenuous).
Though useful from a business perspective, this sort of defensive acquisition is discouraging to me. I would prefer to see the evolution of "social" in general towards an open protocol for maintaining the actual user<->user graph structure and piping of information along it, with a loose confederation of services such as Instagram providing the content hosting/delivery. This would decentralize control of people's social graphs, with control being restricted to subsets of the shared content and its flow over the graph, rather than the actual graph structure itself. I.e. market-driven services such as Instagram would compete to control portions of the infrastructure implementing this new construction, which one might call the "world wide (social) web".
TLDR: Facebook's purchase of Instagram permits them to simultaneously reduce the instantaneous rate of user migration across social platforms while preventing the emergence of a competitive open social platform/protocol, the evolution of which would be greatly facilitated by the prior existence of third-party social content infrastructure such as Instagram, which reduce the size of the "chicken and egg" problem confronting any attempt at an open platform.
source: http://allthingsd.com/20120409/breaking-facebook-to-acquire-...
Edit: Direct Source: http://newsroom.fb.com/Announcements/Facebook-to-Acquire-Ins...
The total consideration for San Francisco-based Instagram is approximately $1 billion in a combination of cash and shares of Facebook. The transaction, which is subject to customary closing conditions, is expected to close later this quarter.
[1]http://techcrunch.com/2012/03/08/no-filter-required-instagra...
The purchase price is usually determined based on the latest round of financing.
http://www.google.com/insights/search/#q=Google%2B%2CInstagr...
"Mr. Silbermann, Larry Page is on line 1"
Those investors in that round had to at least double their money...if the price was indeed $1B, that's all they did. Just 2X. Although, the argument can be made that a 2X return in 1 - 2 months isn't bad...but then again, VC funds don't have a 2 month life, so over the long-term value (i.e. 10 years most-times) of that fund I am not sure how beneficial that is.
Although, I guess they can't be too pissed because it must feel good to be able to at least return something to their LPs in such a short time frame.
Anyway, it's better than 2X, so I guess they can't be pissed.
EDIT: Open mouth, insert foot: http://techcrunch.com/2012/04/09/right-before-acquisition-in...
a) You don't know if the acquisition will actually happen. Therefore if it doesn't, you aren't left with nothing.
b) It gives you a stronger bargaining chip to increase the price of the acquisition because you literally have a strong alternative. Instagram could tell FB to screw off, they are already getting $50M.
It's basically a bargaining chip. Let's look at two different scenarios:
1. Your last round of financing was two years ago and you raised $2M at a post-money valuation of $8M. Two years pass and you're hot, what is you company worth? Look at some comparables (which the acquirer will try and rip apart). Do a multiple of your revenue (which the acquirer will try and rip apart).
2. Now you're hot and you think you might be acquired (or maybe not!), you raise $5M at a $50M post-money valuation. Now when you sit down at the bargaining table, you can say "Well that VC over there thinks we're worth $50M, what do you think we're worth?"
In option 2, you've got a lot more bargaining power.
That being said, this wasn't part of the S-1 and Facebook really has to tell potential investors how this will affect the financials, so presumably there is a revised prospectus or perhaps S-1 in the works.
Unless those economics have changed, but I don't think they have.
It is in that light why I say, it seems a bit precarious. Essentially what would have happened is, these VCs would have contacted their limited partners and said, we have an investment we want to make - send us the money now (this is after the limited partners already committed to giving them that money). The LPs then wire the VC fund the money. The VCs then wire that money to Instagram.
3 months later, Instagram wires the money (assuming it was all cash, which we know it wasn't) back to those investors, which then have to wire the money back to their LPs. So technically, it doesn't REALLY help their portfolio as much as if they got a 10X return in a few years because the money was put to work for a shorter period of time.
Although, if you are 'annualizing' the return properly and assuming a 33% return each month, then the yearly return is actually 29X (compounded), but we digress.
Anyways, there's a excellent blog post that explains this very clearly. It is written for founders to understand the VC's perspective when investing. Does anyone know what I"m talking about?
I been looking for this article for the last few months now.
People through comments saying things like "well, VCs needed to double their investment - this lets them do it in a few months"
Wish I lived in a world where I should have expectations of a several hundred percent ROI on investments.
But more importantly than that, I think it was one of a very few that were good in that fund. I believe that particular fund was particularly bad because it contained remnants of the dot com bust - so only 1 - 3 of their investments in that fund were profitable, and only 1 was enough to pay for the entire fund.
I am not remembering EXACTLY so my numbers may be a bit off...but you can just imagine how annoying it must have been to be a partner in a fund and be telling your LPs that you have essentially lost all their money - and thinking about this for the entire 10 year life of that fund.
Just for at the last minute, almost literally, all of that changes.
People don't think about it, but it's not easy to be a VC.
This buy was just another way for connected Silicon players to cash out on the facebook IPO, since the IPO window for web 2.0 is closed.
I grant that $1B sounds a lot for Instagram and it is harder to see similar commercial value in photos than in videos.
My personal take is that in addition to friend connections, already posted photos could be the strongest lock-in for users that Facebook has against future competitors.
Video has a higher value proposition than photos. Look @ how hard flickr has struggled turning photos into a sustainable business model.
I'm comparing apples to apples. You're comparing apples to oranges.
Certainly that doesn't mean every large acquisition is justified (e.g. Bebo) but it also means you can't just automatically apply the "company X has no clear business model today and so shouldn't have been bought for Y" argument to every such acquisition either.
I fully understand that if I had a $1B offer for a company that I would literally be sick turning them down, but the potential was there for something really big. If I could keep going with $10m in the bank, I would like to think I would try.
And you're cherry picking out one of many Sequoia funds (and still a successful one at that) to point at to call VC life hard? A dot-com period fund as well?
How many other hit funds have they had?
Sequoia estimates that 19% of the NASDAQ’s value is made up of firms they have funded.
I recommend checking out the book 'Venture Deals' by Brad Feld and Jason Mendelson. They explain the various structures of funds, why they're structured that way, and how it influences the decisions the investors make.
I realize the economics of hedge funds and VC funds are different in that VC's take a shotgun approach and hope that one out of ten investments makes up for all the losers, but on any single investment a 2x return is outstanding. On the surface it looks like the founders got screwed nicely on this one.
That's the point, this isn't what happened. Given the choice between 2x return in 2 months or 10x return in 120 months, there's no contest at all. That initial investment that returned 2x is now out of play for the life of the fund. If the fund's life is 10 years, the return is 1.1x, not 2x.
BTW, you're absolutely right. The 2x return extrapolates to a return of trillions of dollars over ten years, so there really is no contest at all.
It doesn't matter if you run a hedge fund, a VC fund, or a trust fund. A 2x return is a 2x return, and anybody would take it any day. Anybody who wouldn't has no business working in finance. Just because you assign a ten-year time frame to your portfolio does not diminish the return on that investment, so the return on your $50mm is 2x, not 1.1x.
If you guide your investment strategy based only upon what you hope will happen in the best-case scenario and look down upon investments that double your investment, you're making a mistake. The only reason they need a 10x return on their winners is because at least nine other bets are going to lose. Any win adds value to the fund. As a fund manager would you rather the $50 million have been plowed into a business that returned 0% which is what you expect to have happen ~90% of the time? Do you understand why criticizing this investment makes no sense? You're comparing a great investment to the few investments that turn out to be astronomically fantastic instead of the vast majority that lose money.
This is your key misunderstanding. When the fund starts, you lock up the money for a specific amount of time (say, 10 years), and once the money's been in, it can't go in a second time. So if you're near the beginning or middle of the fund, and the fund was < $500MM or so you probably wouldn't take 2x on $50MM today, because that $50M will be out of play for the next (say) 9 years.
In other words, it does diminish the return on that investment, because that $50MM is now out of play. Every dollar gets one shot of multiplying, and when it's done it's done, as far as the fund is concerned.
If the fund is near the end of its life and for some odd reason they still have $50MM sitting in it, then yeah, it'd be a great move.
If I invest $100 into 10 different stocks, and I figure that nine of the ten are going to be losses, then I hope that one of the ten will return me at least $1000, or 10x my original investment. That's very different than saying that any of the ten that returns me less than 10x is a disappointment. On the contrary, if one happens to return me 10x over the lifetime of my portfolio and another returns me 2x, then I am even better off than I anticipated.
Anybody who has taken a finance course knows the simple principle that a dollar today is worth more than a dollar tomorrow. It is NEVER better to make a return of equal percentage later in a fund than early. Instead of having $50 million to invest in the original fund in the same companies as before, you now have $100 million to invest in the same companies as before. The fallacy in your logic is that you are hung up on the required return for that single fund.
The only way what you are saying is valid is if by investing that $50 million in Instagram, they missed out on the opportunity to invest in another company that at some point in the future would have returned more. In a window of about two months, I highly doubt that's the case. Again, once you have doubled your money and gotten it back, you can invest it anywhere you like, including the same companies you may have before. But now you have twice as much money. There is nothing magical about that fund that makes its investments more special than another.
Again, that's exactly wrong. As far as the fund is concerned, that money's gone.
Let me help you understand with this link: http://www.danshapiro.com/blog/2010/08/vc-insanity-economics...
Pay special attention to the section entitled, "They don’t appear to be particularly interested in making large amounts of money."
Oh, that's right. Revenue doesn't matter. "This time, it's different!"
The second point is because I have been actively trying to avoid giving fb more data than absolutely necessary. No ill will towards Instagram.
Edit: spelling.
Surely it's already too late. They bought your data.
Why do we allow companies to sell personal data on as part of the company? Should this be legislated against?
That would mean that if a malevolent owner decided to change T&C and sell all your private data youd have a legal recourse with which to stop them.
Personally I think that Opera's browser based server offers a way forward whereby a user would have all their data local and a FB like service would operate as a hub/link - like how bt services are pointers to distributed data.
Why not mandate that contact in case of any change of T&C? Owners of any level of malevolence can change those, not just after a sale.
I can barely endure the thought.
Assuming the first round of $500K was @ $2.5M valuation, giving those investors 20%. So the founders are left with 80%.
Further assume the 2nd round of $7M @ $20M valuation, giving those investors 35%. So the founders are left with 45%.
Further assume the 3rd round of $40M @ $500M valuation, giving those investors 8%. So the founders are left with 37%.
Also assume that the employee stock options pool is worth 10% of equity. Founders left with 27%.
There are two founders, according to Crunchbase [1], so assuming a 50% split for each founder, each founder has 13.5%.
At $1B, each founder walks away with a cool $135M in cash + Facebook stock (which is likely to appreciate significantly in a few months) - which is likely another reason they chose to go with FB as opposed to Google.
Not bad for 2 years worth of work.
If my math is correct, the founders may have ended up with more like $430,560,000 between them ($215,280,000 each assuming 50/50).
I was just doing some rough calculations to show an approximate 'low-figure' of their take.
It is very possible and likely that they took away much more (because all of the variables could have changed).
For instance, that first $500K round could have been convertible debt which would have converted in the $20M round. If that's the case, then those investors ended up with 2.5% instead of 20%. That drastically changes the math and gives the founders more equity and a better outcome.
That will likely push up demand for the stock in the short-term, thereby the price.
Aside from that, we have never seen a service have 800M users and still growing at the rate that FB is growing and have the stickiness that it has. So there is no telling how big it can get - which is why the valuation is so high.
There is no doubt that over the long term, FB will figure out a way to print money. It's just a matter of time.
Someone could read what you wrote and buy stock when your actual reasoning is simply because you think the public are going to get excited and buy the Facebook stock because they use it, along with the big assumptions that a) this wont already be reflected in the price and that b) these people who are buying the stock will have a meaningful impact on a $100b cap company with a 'significant' increase in price.
These are not the best assumptions and reasons to state that it's highly likely that FB stock will significantly increase. Every time I hear someone say something like this I have to ask how much of their own wealth they've stuck out on the line because more often than not it's nothing.
I wasn't giving a stock tip. Just stating what I see as the most obvious conclusion.
That being said, if I had a net worth of any significant value that wasn't illiquid, I would probably buy FB stock on IPO and hold it for a few years. I can't see why you wouldn't want to.
They have not really monetized, they have 800M+ users and they are already doing $1B/profit per year. Imagine when they really figure out how to make money.
But when Facebook saying "we didn't really started to monetize our 800M eyeballs, we just waiting for IPO and will figure it's later" - it's sounds silly.
Just like Twitter is.
You may poo poo it all day, doesn't change the fact that over the long run it works.
Those reasons you have given are basically a gamble on the assumptions that:
- Facebook can earn a lot more money (5x - 20x more)
- Facebook hasn't done it yet because they haven't figured it out
- They will figure it out within 3 years (your exit window)
It does seem like an overly simplified argument. I don't think monetising Facebook to the levels you think possible in a 3 year window is as easy as people think, and it might not actually be possible.
You're also ignoring the possibility that this gamble isn't already priced into the stock.
Totally possible for Google to sink tens of billions into mobile and still wind up on the bottom of the value chain, commoditized along one axis by Facebook and utterly outmarketed by Apple (with its extraordinary profit margins and increasing domination of supply chains) on another.
Or maybe GOOG/Twitter is in the air, and Facebook is reacting defensively?
Instagram is a tool that has a limited shelf-life, with a userbase that is almost certainly already on Facebook. Declaring this some sort of coup for Facebook seems weird, given that the overwhelming sentiment is that Facebook has more net worth than brains at this point.
The second graf isn't worth responding to. I'm not as emotional about tech companies as you seem to be.
"This seems ominous for Google...a shaky claim in mobile....what's left for them...sink tens of billions into mobile and still wind up on the bottom of the value chain...utterly outmarketed"
That's the TLDR version of you pulling Google into a relatively small acquisition of a largely irrelevant tool that a subset of one relatively small platform is even engaged in. Most people reading this story quite rightly react "Instawho?", whereas you see it as a clanging bell of doom for Google. And I'm the emotional one?
I think you think this is some kind of Jets/Eagles thing here, and I'm wearing the green jersey. No. I don't have a side, and I don't think the competitive battle happening here is rational; I just acknowledge that it is happening.
(I know that rivalry from the Patton Oswalt movie).
I was under the impression that Google paid that price (and, indeed, bought Motorola at all) for patents.
Google is doing just fine out of Android. iOS may be better marketed, but there are a hell of a lot more Android phones out there.
I don't keep super close track, so maybe Apple's commanding profit share lead is eroding sharply. Last I checked, "commanding" was indeed the word for it.
Again, all I'm saying is that you can spend a lot of money for a huge footprint in the market and still find yourself at the bottom of the value chain: you can be the guys facilitating a lot of commerce for other people without taking a significant cut.
If you don't believe Google cares about that, why are they wasting their time with G+? Facebook isn't going to be a search engine. Nobody believes that. The worry is that Facebook is going to commoditize search by moving the profits it generates somewhere else.
Well put.
I'm not saying Apple have only scored the safety, or that Google have dominated, just that we're no-where near the end of the game and given Google's game plan is a long one we can't say that it's worse, not right now - we can only predict that we think it is.
I'm all for capitalism, but that statement strikes me as particularly narrow-sighted -- with due respect for tptacek (since I always find your comments insightful). Plenty of people and corporations are not purely motivated by profits. For example, kudos to GOOG for making a cheap smartphone OS available to the 3rd world.
Maybe someday soon Google's strategy of letting a thousand Android devices bloom will pay off. But that is still a "maybe". Apple has tens of billions of "definitely's" to counter that maybe.
Meanwhile: I think people are getting hung up on this whole Apple vs. Google point, and getting away from my real point, which is that:
(i) Google's bids for a stake in mobile have been hugely expensive and not particularly profitable,
(ii) Apple's bids for a stake in mobile have been hugely expensive and hugely profitable, and
(iii) Facebook's bids for a stake in mobile have been expensive but orders of magnitude cheaper than Google's or Apples, and could end up hugely profitable in the long term.
Facebook will end up looking pretty smart if that's what happens. They didn't even have to buy a cell phone manufacturer or write their own OS!
By what metric?
> iOS may be better marketed, but there are a hell of a lot more Android phones out there.
Yes. And Google has made more money out of those fewer iOS phones than it has from the many Android phones.
Total iOS devices: 315M (as of 2012-03-07) Total Andriod devices: 300M (as of 2012-02-29)
http://techcrunch.com/2012/03/07/tim-cook-talks-ios-device-s... http://www.guardian.co.uk/technology/appsblog/2012/feb/29/an...
Android is selling faster, but it has yet to have a larger installed base. It will likely happen soon, but iOS had a large lead in terms of start time and the iPad is killing in the tablet market.
Obviously there are many factors which will adjust the true installed base (broken devices, devices no longer update-able, etc.).
And what do they gain from Instagram?
A user base? Most of them are probably already on Facebook?
Technology for handling photos? Doesn't Facebook already do this as well as anyone else?
Design and UI talent for mobile apps? Don't they already have Mike Matas?
http://gizmodo.com/5841667/facebook-photo-library-dwarfs-eve...
Edit: I know Zuck says they will continue to build Instragram. I'm skeptical.
Not only would he be going against his word - while the internal metrics of the company are going strong - but he would be killing an asset and destroying shareholder value.
Even Zuck isn't crazy enough to pay $1B for a growing company and just kill it. That would be totally irrational.
I suspect this may very well be the best tech acquisition since Google bought YouTube.
Good luck for both of them - even though I am wary of FB's growing clout and I don't use Instagram, it's nice to see a good service find a good home that can support it over the long term.
I am SOOOO happy that Google bought YouTube. Can you imagine a world without YouTube?
I sure can't. Not a good world anyway.
Google's acquisition of YouTube was different, because it was an opportunity for Google to serve more ads. I just don't see a similar opportunity for Facebook in the Instagram acquisition.
First, it integrates an incredibly popular mobile destination into the Facebook ecosystem.
A lot of people have been using Instagram as a replacement for their built-in smartphone camera software. You don't even need to go on Facebook to post those photos, thanks to the Instagram Facebook app.
That's ad revenue and location data that Facebook would love to have more direct access to.
Second, Facebook hasn't really been focused on mobile until recently. Mobile features have been second to web features for a long time now.
I think that Facebook has woken up to how far behind they are in the mobile space, and wants to catch up quickly. Photos are probably the most important sector of the mobile space, especially now that phone cameras are generally as good as mid-market point-and-shoot cameras.
Hence acquihiring Mike Matas (Push Pop Press), and now Instagram.
The question, of course, sounds a bit laughable. But the answer is a non-zero number big enough for facebook to pull the trigger and defend their territory(social networking & photos).
I don't know who Mike Matas is, but given the quality of the Facebook for Android application and the amount of time Facebook's been spending on it... well... $1 billion is still a lot to buy a team to make your Android app not suck.
Though, on that note, the Instagram team wouldn't be the one to buy. Another startup that (took ages to) port their UI to Android and kept the crufty old iOS appearance.
there's a lot of people that wouldn't fit the bill for facebook friending but are perfect in a looser setting. In this perspective, even if userbase has overlap, I'd guess that the social graph on Instagram is radically different than the one on facebook for a lot of users.
Now depending on how much Instagram gets integrated into fb, that might become less and less the case and give an opening to another photo sharing service...
Anyone recall this back in the day? Yahoo! buying BCST.com http://money.cnn.com/1999/04/01/deals/yahoo/
1. If Facebook has $1 billion to spend then they must be making a lot of money.
2. If Instagram is worth $1billion then surely Facebook is worth $100 billion.
http://techcrunch.com/2012/03/08/no-filter-required-instagra...
http://techcrunch.com/2012/04/09/right-before-acquisition-in...
In any case, I bet you can expect them to force everyone to use Facebook for logging in. Yahoo eventually forced us Flickr users to get Yahoo accounts in order to log in.
With Instagram, I think it's a case of user acquisition trumping product strategy. If lots of people are joining Instagram, Facebook wants to own it regardless of how it fits with their main brand.
It seems strange that they're deciding to keep the Instagram social network up as its own independent social network, that leads me to think that their acquisition was really for their big data talent and not just to squash a smaller social network. I wish Mike Krieger's tech talk was more than two days away now, so we could hear about how they're going to merge with Facebook's big data issues too.
FB really wanted Instagram. They've been in talks since August 2011: http://thenextweb.com/insider/2011/08/24/facebook-couldnt-ac...
"We will try to learn from Instagram's experience to build similar features into our other products. At the same time, we will try to help Instagram continue to grow by using Facebook's strong engineering team and infrastructure."
This was purely defense just like YouTube, and Diapers.com & Zappos for Amazon.
Brilliant move all-around.
In a few years, this price will seem like a steal...much like the $1B that Yahoo proposed for FB a few years ago seems laughable now.
I hope Facebook is careful with this one…
With all the news of talent acquisition and subsequent shutdown news, my first reaction was "oh god! yet another shutdown!".
Thankfully there are some very good statements in the announcement. "...we're committed to building and growing Instagram independently. "
Hope this is true especially for the sake of all the startups that are betting on Instagram and building associated products on top.
Day before deal: - Instagram closed a $50 million Series B round from Sequoia, Josh Kushner’s Thrive Capital, Greylock and Benchmark at a $500 million valuation.
Day of deal: - Company gets purchased for 1 billion. - All investors instantly double investment.
"It's common to use an impending investment valuation to drive a higher acquisition valuation. Strategic/acquisition values are typically much higher than investment values. eg, as of today, Instagram is worth more to Facebook than it is to Sequoia, because Facebook gets strategic value in addition to market value. Also note that an investor with a signed term sheet would be fully aware that acquisition discussions were taking place, as well as what valuation range they were in. I would be surprised if Sequoia did not go into this with eyes wide open. They win either way - an instant 2X multiple on investment (and a crazy high IRR), or a highly desirable company that they believe has growth potential. Call me jealous."
How about : "Let me invest right now, so that I won't vote against the FB offer you've got on the table".
Or "If you let me invest now, I can make a recommendation to the FB board that they acquire you".
Now, should I continue to use Instagram at all, I'm definitely not going to share my location.
Or, even worse, giving my backyard patio a bad review ;)
iPhoto is not half bad. http://itunes.apple.com/us/app/iphoto/id497786065?mt=8
Even if it's made the default photo sharing app in the next release for iOS 5+ users for whatever reason, and integrated deeper come iOS 6 this summer, they'd instantly have access to several times Instagram's userbase.
They could using this as a bargaining chip in their negotiations to integrate FB into iOS / iTunes. Because Facebook, a public company, cannot have a $1B acquisition become irrelevant in a couple of months.
It's hard to know where to root. Independent start-ups give great competition to the big players, but I know a lot of people go into an MVP with the goal of making a large exit. It's a great way to get funding for your next startup.
Or maybe it'll be folded into the horrible UI mess that is FB and go away....
It used to be a better world when they just tried their best to get acquired without making public claims to the contrary.
http://www.latimes.com/business/technology/la-fi-tn-why-face...
Which basically has Facebook buying them because of the social traction. Suggesting that perhaps they did not want this to be part of Google+ which has a lot of pictures but not the same as Instagram does with the social connection.
It's really too bad Instagram sold so soon. I hope they took mostly money.
AFAIK instagram didn't make any cent. Premium filters and and ads would be the first choice, but I heard they decided to focus and grow in people loving their product.
Another big thing to deal with is: to sell or not?
I find it interesting that Mark and Facebook were able to buy a company for $1 billion. Its like the joke chris rock said about being wealthy.
"Shaq is rich, the white man that signs his check is wealthy"
Source: http://www.wired.com/epicenter/2012/04/facebook-buys-instagr...
"A million dollars isn't cool. You know what's cool? A billion dollars."
That'd be epic.
If Facebook kills my favorite platform, that would make for a really sad day.
1. What role did the Android app play? 2. When did these two start communicating?
I had no idea my account was worth that much.
I was very confused since only the USA, Canada and the UK use 1 billion = 1 milliard instead of 1 billion = 1k billiard
http://windonaleaf.net/post/20464525754/instagram-perform-ad...
In 2 years, nobody will remember what instagram was.
Web bubble 2.0 can't burst soon enough.