8 ms·

This is very reminiscent of Google/YouTube circa 2006. When Google bought YT it was a small team of people and a pretty nascent product that people really loved

This is very reminiscent of Google/YouTube circa 2006. 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. 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.

redthrowaway 15y ago
It was also only really possible given the resources Google had to throw at YT. It was years before YT was profitable, and even then it was only with the introduction of intrusive ads that that was possible. A company without Google's deep pockets would likely have had a hard time giving YT the chance to grow organically, without trying to butt in and make it profitable.
- homosaur 15y ago
  Maybe YouTube could have done it on their own too, but a big reason why Google was able to keep YT afloat was its widespread peering agreements. So even though it bled cash for years, it didn't bleed near as much cash as it could have because they paid very little for their actual bandwidth.
homosaur 15y ago
YouTube is a content paradise though. There's tons of value there and you can sell ads against it or even charge for premium services. 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.
- freehunter 15y ago
  Facebook currently has very limited editing for their pictures. By acquiring a well-known and talented company, Facebook can roll this into their current offerings. I would be very skeptical that this was a user-driven move. I can't imagine a large percentage of Instagram users who are not also Facebook users, even if people posted a lot of Instagrams to Twitter.
  - peterb 15y ago
    I don't think Facebook would spend $1B for image editing. Image editing has well known and documented solutions.
    - peterb 15y ago
      I think they bought a younger demographic. When I was young I didn't want to hang out with my parents and their friends.
  - brezina 15y ago
    its not about new users. it is about engaging their existing users on a new platform - mobile. Pretty sure instagram mobile crushes facebook mobile in engagement
  - brezina 15y ago
    its not about new users. it is about engaging their existing users on a new platform - mobile. Pretty sure instagram mobile crushes facebook mobile in engagement
  - tanish2khn 15y ago
    one, instagram has brilliant team which also include creative people and not only tech. two, very high yet active user base. three, which is purely on business value - the cumulative time spent in the mobile app of 30 million active instagram users, when you add up, will give more revenue in facebook ad in the following years. i would say, facebook played safe here in trying to regain the usage time.
    - 15y ago
- xutopia 15y ago
  Social sites like Facebook are mostly about photo sharing. This acquisition is all about controlling the main reason people use a social site like FB (or one that competes for it).
- larrys 15y ago
  "Where's the money in Instagram?" Preventing Instagram from developing into something that has a negative effect on Facebook. It's a "keep your enemies closer" move.
  - jimmyvanhalen 15y ago
    and keeping Instagram away from Google. it's a good move.
    - wallawe 15y ago
      But back to the original proposition, is this indicative of a bubble when you drop 1 Billion, or >1% of your estimated market cap on a preventive/defensive measure?
      - niels_olson 15y ago
        you ever play chess? A pawn is 2.6% of your game's value.
        deleted 15y ago
        [deleted]
        corin_ 15y ago
        I daresay that's true, but not exactly relevant. I've also played blackjack, roulette, rock/paper/scissors, and I'm not sure if logic and tactics that work in games are always valid business plans...
      - kevinqualters 15y ago
        There is not really a clear cut metric for deciding if we are in another bubble or not.
      - larrys 15y ago
        There are a few ways to look at this. The 1% is in cash and shares and we don't know the proportion or I haven't seen that anywhere so far. 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.
- acgourley 15y ago
  I doubt you, or anyone else, was saying that then youtube was purchased. It merely looked popular. 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.
  - nupark2 15y ago
    The money in YouTube is in professional and editorially selected content. Music videos, trailers, some guy crashing a music video audition, etc. There's almost no room for that kind of content from a photo sharing system.
  - silverbax88 15y ago
    Lots of people were saying that YouTube could be monetized, especially by Google, because Google needed content, which YouTube had, Google wanted to get into the booming video landscape and Google had massive bandwidth, which YouTube desperately needed. The only issue was how fast Google would clean up all of the copyright infringement and how it would affect YouTube.
- deleted 15y ago
  [deleted]
- dacilselig 15y ago
  I remember people saying the same thing about Youtube and that Google will not be able to profit off of it's purchase.
- sendos 15y ago
  > I'm more convinced that we're in a 2nd bubble now more than ever. 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 http://en.wikipedia.org/wiki/Greater_fool_theory
  - nikcub 15y ago
    If this acquisition goes bad, Facebook goes from being worth 100 billion dollars to being worth 99 billion dollars. People don't lose their savings or retirement accounts. To me this just confirms that people who talk about bubbles now weren't here for the last real tech bubble.
    - sendos 15y ago
      What I was referring to with the greater fool theory is that the investors who put in ~$50 million, for a valuation of ~$500 million thought they'd find a greater fool to sell the company to, to make money off of (since I don't think Instagram could actually earn that money from its userbase), and that greater fool turned out to be Facebook. 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.
      - nikcub 15y ago
        What you call greater fool is just who has more value for Instagram. Instragram is worth more to Facebook than it is to Sequoia because Sequoia don't run a social network with hundreds of millions of users and aren't trying to stop Google from killing their business. 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.
- Kavan 15y ago
  When Goog bought YouTube it was a mess of content. There was litigation everywhere and no advertisers wanted their products associated with it. 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.
georgespencer 15y ago
> This is very reminiscent of Google/YouTube circa 2006. 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.
- achompas 15y ago
  Instagram is a photo service in a sea of other photo services. 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/instagrams-exploding-adds-a-million-android-users-in-12-hours-and-raising-50-million/ http://www.forbes.com/sites/anthonykosner/2012/04/07/instagr...
  - waterlesscloud 15y ago
    I suspect the main photo app is the default android camera, by a long long long looooooong distance.
    - 15y ago
nextparadigms 15y ago
Google also missed buying Flickr back then. I think Instagram would've been a smart buy for them, too, at least from a social network point of view. I don't want Facebook to gobble up all rising social networks. Maybe Google was looking to buy Pinterest instead?
cageface 15y ago
This feels a lot more like the 1999 "eyeballs" landgrab. There's no unique technology behind Instagram. Being popular != being valuable.
- scalhoun2005 15y ago
  Totally agree, unless the purchase is cheaper than gaining popularity, but that seems far fetched in this particular case.
puranjay 15y ago
Have you completely forgotten about Android? Do those millions count for nothing? 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?
Duff 15y ago
I say follow the money. Things that don't make any sense on the surface often have simple motivations. Someone (perhaps someone affiliated with the Instagram funding round that closed days ago) needed an infusion of cash. Facebook has more cash than they know what to do with.

redthrowaway 15y ago

It was also only really possible given the resources Google had to throw at YT. It was years before YT was profitable, and even then it was only with the introduction of intrusive ads that that was possible. A company without Google's deep pockets would likely have had a hard time giving YT the chance to grow organically, without trying to butt in and make it profitable.

homosaur 15y ago
Maybe YouTube could have done it on their own too, but a big reason why Google was able to keep YT afloat was its widespread peering agreements. So even though it bled cash for years, it didn't bleed near as much cash as it could have because they paid very little for their actual bandwidth.

homosaur 15y ago

YouTube is a content paradise though. There's tons of value there and you can sell ads against it or even charge for premium services. 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.

freehunter 15y ago
Facebook currently has very limited editing for their pictures. By acquiring a well-known and talented company, Facebook can roll this into their current offerings. I would be very skeptical that this was a user-driven move. I can't imagine a large percentage of Instagram users who are not also Facebook users, even if people posted a lot of Instagrams to Twitter.
- peterb 15y ago
  I don't think Facebook would spend $1B for image editing. Image editing has well known and documented solutions.
  - peterb 15y ago
    I think they bought a younger demographic. When I was young I didn't want to hang out with my parents and their friends.
- brezina 15y ago
  its not about new users. it is about engaging their existing users on a new platform - mobile. Pretty sure instagram mobile crushes facebook mobile in engagement
- brezina 15y ago
  its not about new users. it is about engaging their existing users on a new platform - mobile. Pretty sure instagram mobile crushes facebook mobile in engagement
- tanish2khn 15y ago
  one, instagram has brilliant team which also include creative people and not only tech. two, very high yet active user base. three, which is purely on business value - the cumulative time spent in the mobile app of 30 million active instagram users, when you add up, will give more revenue in facebook ad in the following years. i would say, facebook played safe here in trying to regain the usage time.
  - 15y ago
xutopia 15y ago
Social sites like Facebook are mostly about photo sharing. This acquisition is all about controlling the main reason people use a social site like FB (or one that competes for it).
larrys 15y ago
"Where's the money in Instagram?" Preventing Instagram from developing into something that has a negative effect on Facebook. It's a "keep your enemies closer" move.
- jimmyvanhalen 15y ago
  and keeping Instagram away from Google. it's a good move.
  - wallawe 15y ago
    But back to the original proposition, is this indicative of a bubble when you drop 1 Billion, or >1% of your estimated market cap on a preventive/defensive measure?
    - niels_olson 15y ago
      you ever play chess? A pawn is 2.6% of your game's value.
      - deleted 15y ago
        [deleted]
      - corin_ 15y ago
        I daresay that's true, but not exactly relevant. I've also played blackjack, roulette, rock/paper/scissors, and I'm not sure if logic and tactics that work in games are always valid business plans...
    - kevinqualters 15y ago
      There is not really a clear cut metric for deciding if we are in another bubble or not.
    - larrys 15y ago
      There are a few ways to look at this. The 1% is in cash and shares and we don't know the proportion or I haven't seen that anywhere so far. 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.
acgourley 15y ago
I doubt you, or anyone else, was saying that then youtube was purchased. It merely looked popular. 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.
- nupark2 15y ago
  The money in YouTube is in professional and editorially selected content. Music videos, trailers, some guy crashing a music video audition, etc. There's almost no room for that kind of content from a photo sharing system.
- silverbax88 15y ago
  Lots of people were saying that YouTube could be monetized, especially by Google, because Google needed content, which YouTube had, Google wanted to get into the booming video landscape and Google had massive bandwidth, which YouTube desperately needed. The only issue was how fast Google would clean up all of the copyright infringement and how it would affect YouTube.
deleted 15y ago
[deleted]
dacilselig 15y ago
I remember people saying the same thing about Youtube and that Google will not be able to profit off of it's purchase.
sendos 15y ago
> I'm more convinced that we're in a 2nd bubble now more than ever. 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 http://en.wikipedia.org/wiki/Greater_fool_theory
- nikcub 15y ago
  If this acquisition goes bad, Facebook goes from being worth 100 billion dollars to being worth 99 billion dollars. People don't lose their savings or retirement accounts. To me this just confirms that people who talk about bubbles now weren't here for the last real tech bubble.
  - sendos 15y ago
    What I was referring to with the greater fool theory is that the investors who put in ~$50 million, for a valuation of ~$500 million thought they'd find a greater fool to sell the company to, to make money off of (since I don't think Instagram could actually earn that money from its userbase), and that greater fool turned out to be Facebook. 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.
    - nikcub 15y ago
      What you call greater fool is just who has more value for Instagram. Instragram is worth more to Facebook than it is to Sequoia because Sequoia don't run a social network with hundreds of millions of users and aren't trying to stop Google from killing their business. 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.
Kavan 15y ago
When Goog bought YouTube it was a mess of content. There was litigation everywhere and no advertisers wanted their products associated with it. 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.

georgespencer 15y ago

> This is very reminiscent of Google/YouTube circa 2006. 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.

achompas 15y ago
Instagram is a photo service in a sea of other photo services. 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/instagrams-exploding-adds-a-million-android-users-in-12-hours-and-raising-50-million/ http://www.forbes.com/sites/anthonykosner/2012/04/07/instagr...
- waterlesscloud 15y ago
  I suspect the main photo app is the default android camera, by a long long long looooooong distance.
  - 15y ago

nextparadigms 15y ago

Google also missed buying Flickr back then. I think Instagram would've been a smart buy for them, too, at least from a social network point of view. I don't want Facebook to gobble up all rising social networks. Maybe Google was looking to buy Pinterest instead?

cageface 15y ago

This feels a lot more like the 1999 "eyeballs" landgrab. There's no unique technology behind Instagram. Being popular != being valuable.

scalhoun2005 15y ago
Totally agree, unless the purchase is cheaper than gaining popularity, but that seems far fetched in this particular case.

puranjay 15y ago

Have you completely forgotten about Android? Do those millions count for nothing? 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?

Duff 15y ago

I say follow the money. Things that don't make any sense on the surface often have simple motivations. Someone (perhaps someone affiliated with the Instagram funding round that closed days ago) needed an infusion of cash. Facebook has more cash than they know what to do with.