I'm not a huge photo-sharer, and I certainly don't claim to be an expert on the space, so forgive my ignorance when I ask if photos is really a billion dollar beach head - a 1% of Facebook billion dollar beach head.
Did Facebook simply look at their activity, determine that 25% of their engagement is driven by photosharing, and decide that 1% of the company was more than reasonable to protect that space? Or something to that effect?
Something like that. Facebook saw that Instagram was adding users fast and dominating mobile (a weakness of Facebook's). The plurality, if not the majority, of Facebook activity revolves around photo sharing and photo interactions (photos get way more engagement than the sharing of links).
So Zuck decided to take them out of the competitive landscape now, while it could still afford to, rather than risk Systrom turning Instagram into a major social network that siphoned away significant amounts of activity from Facebook.com
If that's really the case then there's no way Facebook is worth what (most) people think. Instagram launched in October 2010 and were acquired with only 13 employees. If a tiny company like that even has a chance to dent Facebook's market position then they are in an extremely precarious spot, IMHO.
More startups like Instagram are going to appear. No one can predict when or where but given the low barrier to entry, it's going to happen. If it costs Facebook $1B per "bullet" to kill them then they are going to run out of bullets.
A lot of startups "like" Instagram already exist, but ONLY Instagram has 40+ million users, that's the difference. Just because 100 more startups get created in this space doesn't mean any of them will acquire a sufficient userbase to threaten Facebook.
I'm thinking that his point (which I agree with) is that if a photo-sharing app with twelve people and no revenue can come from nowhere in less than two years to threaten Facebook's very existence, Facebook may not be worth $100 billion. I think the crux of this debate is whether you think Instagram was poised to become a real threat in the social space to Facebook. I think Facebook overreacted, and given this information (that Zuckerberg essentially bought it up himself) the disconnect from a realistic valuation seems even more likely. But then again, they may never get a chance to buy up companies with stock that possesses so much hype.
True. But on the other hand, look at RIM (Blackberry) and Apple (iPhone). Any large incumbent can be displaced. They take longer to die because they have cash, but they die nonetheless.
"... I'm not a huge photo-sharer, and I certainly don't claim to be an expert on the space, so forgive my ignorance when I ask if photos is really a billion dollar beach head ..."
Good question that I was also questioning why until I found this quote:
I'll go off on a limb and posit that Facebook's real worth is a lot less than 100billion. It is still a huge amount but for now I would not say 100 billion. If so then they just bough Instagram for more than 1% of Facebook's worth (If it was mainly cash). Pure guest: 3%-5%. I would not be surprised if it was higher.
However, if they purchased Instagram with mainly Facebook stock then it doesn't really matter since at such a high Facebook valuation, Facebook probably got a nice deal (because I don't think 100 billion is the right valuation).
One reason I think this is that I'm remembering the high valuations that Yahoo and AOL used to have.
Not if they paid most with FB stock valued at around $100 billion. Some caveats apply I'm sure, but I have a feeling FB will trade around $100 billion. Whether it's a good investment at $100 b or not it's a different matter, and people can disagree
I too think that Facebook will trade around 100 billion, at first. My gut feeling is that eventually the stock will settle down to its true value.
Think about it, a lot of people do believe that Instagram had a real chance of taking Facebook out.
To put it in perspective, I do not believe there has been a startup that google has bought because there was a chance it would take them out. The main thing that google does is search, and they still do it better than anybody else. Facebook on the other hand seems to have a lot less moat, as evidenced by this purchase.
If their moat is that weak than 100 billion is too risky. It could implode at any moment. The next startup or the next hot new thing could take them out.
>"Think about it, a lot of people do believe that Instagram had a real chance of taking Facebook out."
Who, pray tell, would these people be? Because that's a ludicrous assertion.
I'll argue by analogy here: I don't know anyone who uses Instagram. Everyone I know uses Facebook. Instagram was making zero dollars. Facebook is generating cash in the billions. Instagram has 30MM users. Facebook is approaching a billion.
Instagram has some strategic value to Facebook, obviously. But I don't know how anyone can claim that these companies are competitors.
>>"Think about it, a lot of people do believe that Instagram had a real chance of taking Facebook out."
>Who, pray tell, would these people be? Because that's a ludicrous assertion.
Well, I would guess the 'hip' people who write for the startup blogs (i.e., Pando, TechCrunch, RWW, etc.) think so, but I think among normal people, we would agree that was a ludicrous assertion.
FB is probably going to trade at $100 billion day one, maybe a get 20% jump on excitement and I think they will keep that way for quite a few quarters as they ramp up monetization. IMO, they should not trade at $100 billion to begin with but then they have almost a billion people glued to their network. When you take China out, kids and truly old people and you're talking an insane % of the world's online population.
I have a slightly different and gut-feel driven take on this. Much of Facebook's valuation is dependent on the potential of the company to monetize its user base at a much greater level in the future. This is commonly referred to the 'narrative' that investors and markets like.
Of late, that narrative has been wearing a bit thin. They're adding users at a crazy pace, but monetization has not kept pace and by the time the IPO comes out, by virtue of more actual information being public, the buzz around the company will take even more of a hit.
Instagram is only step towards shoring up that narrative and once they go public, I'll expect more such deals to come through. They did not acquire the company because they were scared of it.
With that, I'll end my amateur attempt at mind reading :)
When Yahoo bought Flickr there was no mobile market. What people get used to using all the time on their phones is a big deal, for many people, their smart phone is now the main way they browse the web and it is quickly becoming common way for them to upload pictures and participate in social media. You can move 40 million people's habits, but not easily.
Did Facebook simply look at their activity, determine that 25% of their engagement is driven by photosharing, and decide that 1% of the company was more than reasonable to protect that space? Or something to that effect?