Much has been said since Facebook dived into their war chest to purchase photo-sharing application king Instagram for a cool US$1 billion earlier this week.
Most of the reaction in the media and social networks was of 'shock'. I was not surprised.
"A billion dollars of money? For a thing that kind of ruins your pictures?" - Jon Stewart said on his The Daily Show.
"This will make you think: at its current, public market valuation, the New York Times company is worth about $50 million less than the $1 billion that Facebook just paid for Instagram." - The Next Web reported.
Of course the mobile application - which recently maintained its standing as the leading photo-sharing mobile application when it released its Android version and attracted 1 million downloads in a day - does more than ruin your pictures.
It provides a fantastic mobile interface for taking and sharing pictures with your Instagram social network, and other social networks like Twitter, Facebook, Tumblr and Foursquare.
While the value of such a product can be debated, it cannot be debated that today's market is valuing good web and mobile businesses very highly. Particularly ones with social appeal like Instagram, which has over 30 million active users.
The market does not rate traditional news sources anywhere near as highly.
The New York Times is a wonderful global brand, but what it is not is a growing business in a growing industry. Instagram added 5 million users within 6 days of launching their Android application. That is a growing business in what is a growing industry.
We should not be surprised. Since the advent of capitalism, the market has determined the value of things, and tech is now valued very highly and Instagram is a growing tech business with a cult following.
What was the market thinking? What contributed to the $1 billion price tag that Facebook coughed up? Here are some thoughts:
- Competition: I find it hard to believe that Facebook was the only bidder for Instagram, with the likes of Google and Yahoo mentioned as other interested parties. Like in any barter, competing bids drive up prices.
- Fear: Instagram does not yet integrate with Google+, Google's latest social networking play. While it is hardly a relevant competitor to Facebook yet, the brains trust at the leading social network would not have wanted the integration of Instagram into Google+ to go ahead.
- China: It is no secret that Facebook has so far been frustrated in its attempts to dominate the social networking industry in the world's biggest marketplace, China. Instagram is already a smash hit in China and will give Facebook a foot in the door.
- Talent: Facebook's mobile applications are not the greatest. They receive much criticism due to their non-native feel and bugs. Instagram is in contrast brilliant and native. The talent that brought that to the world will likely lead Facebook's future mobile efforts.
- Cash: Facebook has raised large rounds and is heading towards what is expected to be a record IPO. The company has cash and have not shown an ability to spend it in the past, and they are about to come across a lot more cash. This purchase shows that acquisitions and market consolidation will clearly be a tactic employed by Facebook post-IPO.