Can you see the social bubble bursting soon?
Instagram, a photo sharing application created 2 years ago by Kevin Systrom got sold to Facebook for $1 billion today! Impressive! Many of my friends including great photographers such as Kris KrÃ¼g are using this very cool app since it first came out on the iPhone.
Instagram offers some pretty cool features such as filters and connectivity to other networks, it is a uber active community where users not only post pictures but comment and â€œlikeâ€ other peopleâ€™s work as well.
With about 30 million users, instagram is a great purchase as Facebook gear up to go public in what will be the largest IPO ever (estimated at $100 billions). Perhaps spending 1% of their net worth is a good bet in their continuous efforts to grow their user base while adding new features, innovations and talent to the team.
But why 1 billion dollar? Lets do the math; 30 million users, this mean that fb paid about 33$ per user (which I think most instagram users also have Facebook accounts) so that is not spending money on user acquisition… Perhaps they are looking for a larger footprint into the mobile market, adding more interactive users, or expending their advertising market over a larger network? Are those real motivations to spend a billion dollar?
All this talk makes me wonder about a few things: If instagram is worth $1 billion, how much would flickr be worth today? And why is Yahoo! not seeking to sell it off to someone who would take better care of this dying community? Most likely because most talented people behind flickr have since moved on to new projects. Still Flickr offers some great features, has a large, active user base, loads of content dating back to 2004. So why isnâ€™t there someone out there willing to take over our dearest photo sharing social community?
What is the value of a dollar, or a user or an app? Everyone dreams about building the next billion dollar company (it used to be the million dollar dream). These guys somehow managed to pull it off, what started with an idea, secured 200k in 2010 to eventually secure 60 millions from Sequoia Capital only a week before flipping it over to Zuckerberg and his team for a billion dollar. Madness!
What can you buy for a billion in todays’ economy? Yelp! market valuation is 1.5 billion, Zynga (which is responsible for about 22% of facebook’s current revenue) is worth 8.6 billion, Hasbro (you know GI Joe, Transformers toys and movies, and many other big brand merchandizing such as Marvels, Star Wars etc) is worth 4.6 billions. Microsft just purchased from AOL for just over $1 billion the bulk of their patents portfolio.
So how can someone put a billion dollar price tag on a photo sharing social network with no revenue? What does this mean for twitter or Angry Birds‘ creator Rovio and other social network sites and mobile apps out there?
Have we forgotten the value of a dollar and become desensitize to the value of money? The average north American university graduate get paid about $40,000 a year once he/she finished school with an average debt of $25,000.
How much value would you get if you spent a billion dollar and hired 25,000 grads for a year at a starting salary of 40k?
Iâ€™m not saying Instagram is not worth that kind of money, but this is certainly setting a precedent for future acquisitions and upcoming social network and mobile apps IPOs.
Looking at these kind of trends, I canâ€™t help but remembering the end of the 90s as volatile company valuations burned into smoke and pipe dreams overnight…