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Comment by DanI-S | Hacker News Reader

This whole thing has really thrown into contrast the extent to which people conflate monetary value, societal value and the abstract concept of 'merit'.

A business is valuable to own if you think it may bring you more money in the future, or you think that owning it will give you an advantage over your competitors.

That's it. That's the entire thing. Nobody is trying to put a value on the relative social impact of Instagram vs the New York Times. Facebook merely calculated that they'll make more money as its owner than they would otherwise.

That our culture has seen to directly associate cash value with 'intrinsic' value is another issue entirely.

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A business is valuable to own if you think it may bring you more money in the future, or you think that owning it will give you an advantage over your competitors. That's it. That's the entire thing.

I don't think that's accurate; that assumes that 100% of businessmen make 100% of decisions purely to make more money, which I don't think is true. If you have a big pile of money, one of the things you can do with it is buy or start companies that you think will make you more money, but other things you can do include buying/starting companies you think will advance your personal goals, buying companies you'd just like to own, etc.

For example, we have a lot more wealthy tech people owning space-travel companies than I think would be justified based on the economics alone. They consider them valuable to own because they want to own a space-travel company. Similarly, there is some non-zero value, beyond its projected revenues, to owning the New York Times. I would certainly pay a non-zero amount for the social power it would gain me to own the NYT, so there you have an existence proof that the value of its social position is at least a few thousand dollars. :)

You make a good point - there really is no way to fully disconnect the human element in these decisions.

I do think there's a real difference between Jeff Bezos/etc founding a space-travel company and Facebook buying Instagram, however. Although Mark Zuckerberg is at the top, Facebook is a large organization, with likely more complex motivations than any individual.

To what extent does it even make sense to speak of the "motivations" of a group of people, insofar as they aren't unanimous? Has anyone done a study on whether this provides any predictive power? It seems plausible to me that a group's "motivations" are just stories about what people in the group did.

This has been shown to be true for sports teams. People buy them for more money than the underlying business is worth because they want to be the next Mark Cuban, George Steinbrenner, etc.

It always felt to me like Teslas's entire existence is based on this:)

A more accurate version is:

> A business is valuable to own if you think it may bring you more value in the future […]

The mistake is conflating money and value: money can be a value, but other things, like riding into space, the prestige of owning a paper, and general quality of life are also values. A decision makes economic sense if the value you gain from it exceeds the value you give up to get it, regardless of the form those values take.

The question that the article is trying to answer is: why did Facebook pay 1 billion dollars for Instagram?

We can't, of course, argue that, since Facebook paid 1 billion USD for Instagram, Instagram is worth 1 billion. Simple circular argument. So, why did FB pay 1 billion dollars for Instagram?

Now, the article compares the New York Times, a well established, global corporation, which reaches millions, has lots and lots of world-class talent, physical assets, and a defined business model with profits, as an alternative buy to Instagram. Which consists of 37 million users, most of them in Facebook already, and no clear business model. For roughly the same price.

And it asks us to consider what choice we would make, supposing we were on FB's board of directors. That's it. No deep questions on the fetishism of commodities or the marginal social value of this transaction.

>defined business model with profits

I think a startup with no business model tops a "defined" business model with rapidly declining profits

No business model is better than declining profits? In other words operating at a loss is better than declining profits?

For the millionth time, FB did not "pay" 1 billion, they gave Instagram an unspecified (and probably very low) amount of money and a quantity of pre-IPO stock. FB paid almost nothing, their risk is trivial, Instagram's investors however have had their bet on Instagram converted into a bet on Facebook.

I'd consider this the definitive answer.

Your comment should be at the top.

I don't think Facebook believes they'll make more money buying Instagram (I'd be will to bet that on a P&L basis the NYT will make more/lose less than Instagram over the next 5 years). I think that they believe their enterprise value will decrease less and this is a defensive acquisition. They probably saw that $100B valuation vulnerable to dropping to $75B (completely made up numbers, just for the purpose of example) if user growth or photo sharing (or some other blech social metric) dropped off in the lock-up period. Spending $1B to preserve $25B of 'value' is an easy call.

Let other people say what they will about the fact that such a easy to reproduce and young startup caused them to drop $1B defensively...

That our culture has seen to directly associate cash value with 'intrinsic' value is another issue entirely.

No, it's actually a very important point. Our culture bought into unbridled capitalism on the basis that it would produce a meritocratic economy in which market value approximates social ("intrinsic") value. If that is a lie, we have every grounds to reevaluate our economic model for our own good.

I couldn't agree more. However, that big old can of contentious worms is exactly why I called it another issue entirely :)

When has there ever been "unbridled capitalism?"

Right now?

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