A glass of water can be worth more than the New York Times if Zuckerberg is lost in the desert and you happen to have water. It can be worth even more if Larry Page is dying of thirst at the same time and starts a bidding war.
perfect example of use value vs. exchange value. Instagram has an exchange value of $1B (in FB stock and cash) simply because Facebook chooses to make that exachange . . .poof . . just like that. Instagram also has a use value, which is yet to be determined (and is impossible until there's a price they charge for their service to folks that USE their product). Of course they could put ads on their service in which case the use value then is determined by the advertisers that PAY to use Instagrams 'network'.
One other slightly different view I'll throw out there is that FB having to pay Instagram $1billion, is simply its "cost of doing business".
For FB to maintain its leadership position -- especially with an IPO around the corner no less -- it needs to periodically "eat up" any new threats that may come along. This is afterall the tech space where "low-cost barriers to entry" are common, making this industry very different from what you read in business school.
So, if I was a (future) shareholder of FB I would simply need to be wary of these periodical "write-offs". Afterall, isn't this really what happened to Yahoo? It had to keep spending money to stay relevant until their common shareholders got disillusioned?
Hmm, I'm not even sure that the "lost in the desert" part is inappropriate as the metaphor. What was it that I read about an AirBnB for dogs the other day?
But see, the second somebody talked about that the people without pets said "derp, pets.com 2.0" and the people with pets all said, "take my money now!". So, it's really one of those apparently bad ideas that's secretly good, whereas many startups are the opposite: apparently good ideas that are secretly terrible.
I don't care if you're selling whale shit online, if a whole lot of customers line up the second you mention your idea, you're in business whether third parties like it or not.
As funny as it may sound, extended travel is a serious PITA when you have pets at home. Being able to leave your dog or cat with someone who has built a reputation as a good caretaker would be hugely preferable to taking them to a kennel.
It sounded so dumb at first, but after thinking about how my pet changes my travel schedule and has caused me to ask too many favors from friends. Someone please do this.
It'd be awesome to be able to leave my pet with other fellow pet owners. I'd be willing to take pets in my house as well to keep my cat company.
> A glass of water can be worth more than the New York Times if Zuckerberg is lost in the desert
True. But only if you have the only water on sale in the desert.
What is instagram anyway? It tints photos and uploads them? That would cost Zuckerberg or Page maybe $10k to code and roll out a clone. I don't get it. Unless they're paying the owner of a rival tap to turn it off. But then someone else will just open a new tap, the barrier to entry is low. I still don't get it.
This explanation makes me daydream about a new social app that convinces FOO million Facebook users to join just on the promise that each user gets a stake in the payout when it gets bought. How impossible is it to get 30 million people on board for an average payout of $30 each? Maybe some game mechanics could help... get more of your friends to join "Let's-eat-FB's-lunch-agram" and you get a larger payout.
No I do not think that is all, and some could argue that they have 30 million iOS users...but people need to realize, Facebook could have done this for 100,000$, 10,000 times less then what they paid for.
And they have the world's largest and most captive audience, 845 million people, they would have just needed to convince less then 4% of them to have a similar amount of users.
Make no mistake, this is a crazy amount of money spent on a less then 2 year old, 13-man company. I think post-IPO, Mark might not have been able to get this as easily approved by the board of directors.
It's really not realistic to say that facebook could make it for $100k; even entry level developers at facebook make more than $100k salary yearly which means they each cost the company significantly more than that including benefits, office space, hardware, etc. Even if they took 2 developers, half a PM and half a UX person on this for only one quarter it would cost way more than that.
Of the 13 people, two are founders, two are engineers, two are developers, the rest are customer service reps.
Of the four engineer/developers, only one of them wasn't hired in the last few months. One of them was hired two weeks ago, one in January, another in December.
So only one developer is responsible for the app and all the servers, the others haven't hardly had time to get up to speed.
Not surprising, the iOS version is trivial since CoreImage' image processing library provides all the filters and image processing. Doing the port to Android was the hard part, although most likely they just licensed an image processing library from someone, or extracted it from GIMP's open code.
I think it is realistic to say the cost of developing the iOS version, which is what most of their 30 million customers are using, was well under $100,000.
First of all you are talking about Instagram and I am talking about facebook. If some random students made Instagram who were otherwise making minimum wage it's not like you can claim Facebook should be able to make it for <$1000. Also, it isn't just the app that we are talking about but the server and all associated infrastructure.
But secondly, I'm not sure how you went from 13 people to 3, lets assume we we accept that we are only talking about the 3 people. Even if those 3 people are making only $50k yearly salary, working on this for 6 months is already costing Instagram well over $100k once you take into account office space, benefits and hardware.
They could have done the tech for that much. The marketing would have cost a bit more. But do you know how much it costs to send tech and marketing a year and a half in to the past? That requires BIG bucks.
Yeah but they'd have to either integrate it with the Facebook app, which is over complicated and absolutely stinks on Android (still), or they'd have to release a separate app which would be competing with Instagram's brand.
The success of these new things like Instagram and Tumblr seem to be their mindless simplicity.
What brand value? I never hear anyone talking about Instagram in real life, ok, maybe in some twitter feeds. But they'll go move on to the next big thing if the next big thing gave them more of what they wanted. Instagram is probably a bigger brand name to hackers, and developers than it is to regular users.
I'm not sure if this reflects poorly on me, but I actually forgot what Instagram specifically did, and had to do a quick search to refresh my memory upon reading the news.
Mentally, I lump Instagram, Pinterest and other en-vogue social-ly apps together. Speaking of the latter, I would imagine they're probably rubbing their hands with glee right about now.
You're thinking in the wrong terms. Is the Instagram brand worth less than 1% of Facebook? Also, I see hordes of high school and college females- especially the 'popular' ones with iphones- using instagram. When you have possibly the best target market, and a tiny valuation for what basically is facebook's other lifeblood (photos are second only to the social graph), Instagram was positively cheap.
I'm sorry, I think we're living on different planets.
Edit: I don't mean to rubbish what you're saying. I agree that it and the brand have value but to me that equates to something like $150 to maybe $250 million at a push. $1 billion is off the wall.
Unfortunately, if the price somebody was willing to pay is the only concept of valuation we have, the stock market would never crash. The problem is that there is a concept of overvaluation. Otherwise we wouldn't have bubbles. When future expected earnings don't match up with the stock's sky-high valuation reality tends to catch up eventually.
Instagram does not produce more value for more people than the New York Times, our newspaper of record. It is an app that nearly everyone reading Hacker News could write in less than a month, and scale just as easily. Facebook could have added photo filters to its photo sharing site in less than a week and suck up a good portion of Instagram's audience. I'm still at a loss to explain why this was a good idea - but I guess we'll see if it bites Facebook in the ass.
This purchase, and the fact that people having a tiny idea are given multi-million dollar seed rounds regularly, are why I think we're in another bubble.
> A glass of water can be worth more than the New York Times if Zuckerberg is lost in the desert and you happen to have water.
What if you don't bother to drink the water? What do you call that?
Call me naive (I am), but there has to be more to this than the respective to ones needs narrative. Here's a few points that I've soaked in:
- Instagram will continue to be a separate entity
- Instagram "brand" is worth $
- Instagram revenue is worth ?
OK. So, let's say FB acquired Instagram for their "brand". How will FB benefit from Instagram's brand if they are a completely separate entity? If they are after revenue/audience, where's the money? There is more to this than just being best buds with one of the photo sharing platforms of choice.
If Zuck owns Instagram he doesn't have to worry that it will hurt Facebook in some large way. Instead he can hope owning Instagram will help Facebook in some large way. That's worth a billion to him.
correct. Instagram is "worth" $1 Billion to Facebook, but it's worth $100 to a funeral home. But if you think about it, Instagram is worth way more than $1 billion to Google.
Don't be too sure. I'm sure there's some innovative funeral home that would be able to utilize Instagram to offer a way for mourners to document the mourning process and find closure, a way that would be worth much more than $100. Maybe not $1 billion, but more than $100 for sure. ;)
Because of the huge user base! (Of course, 95% of instagram users are already on facebook, but imagine if instagram uploaded your photos by default to G+)
If it didn't have the potential to become a very profitable, large scale business, I doubt if Mark Zuckerberg or Larry Page would have much reason to care about it.
This sort of "appeal to authority" holds very little weight in and of itself.
Rich and smart people make plenty of mistakes, and are just as prone to tunnel vision as the rest of us.
However, I am fairly certain they view this acquisition as protective rather than expansionary. Picking up Instagram just means it can't be used against them (FB), not that it has some hidden-to-the-masses potential for being monetized.
I wasn't suggesting that it was valuable because Mark Zuckerberg cared about it. Quite the opposite actually. I was suggesting that Mark Zuckerberg cared about it because it was valuable.
If it had no potential to be a sustainable business, how could it be a threat to anybody?
Great analogy. They are at the right place (with viral growth and momentum) at the right time (sitting between two at war competitors). I hope this doesn't set a bad example though. It's not like every company with viral growth is going to be acquired for such expensive valuations.
For those who are not paying attention: kirubakaran is telling you that Google bid up instagram and Zuck blinked.
Now, the funny thing about this is that I can understand Larry Page thinking that he is dying of thirst from lack of penetration into the social media world. But Zuck? The smart thing would have been to let Google have it. It's 14 guys. And an app. Puhleeaz.
What this tells you is that Zuck doesn't really know what's going on and that Google can exploit this. Google has a lot more cash than Facebook, and if Google keeps playing this game, Facebook is going to be distracted as hell. And broke before too long.
Part of the problem is that Facebook is facing an employee revolt. They've been clamoring for their IPO exit for a looooong time, and they've had to put up with Zuck and his crew.
Part of the problem is that Facebook is pissing users off, especially with this new timeline nonsense. People want nothing to do with Facebook, but all of their contacts are on Facebook, and its the perfect medium for building a personal brand and connecting with friends.
Facebook is the Yahoo of social media. But it's 1999, the bubble is growing like crazy (it will pop soon) and nobody, absolutely nobody, has heard of the little company that was founded last year that will eventually come to dominate the social media world.
