Facebook and the $1 billion bargain!
There has been a lot of noise in the last 24 hours about the fact that Facebook have bought Instagram for $1 billion. Instagram, for those of you who have been living in a cave and don’t know, is a mobile app which allows you to take your pictures and give them a vintage feel at the click of a button. The app has 30 million iPhone users – a week ago it launched on Google’s Android operating system and gained five million downloads in just six days.
The BBC website is asking whether ‘this is the return of silly money to Silicon Valley? Is it a case of panic buying, with valuations pushed up in a bidding war with Google or another competitor?’
Huffington post are asking whether a Company less than 2 years old can really be worth more than the New York Post
The reaction seems to be around the age of the Company and the fact they only have 13 staff but surely this is irrelevant? A business is worth what someone is willing to pay for it and the person willing to pay for it, in this case Mark Zuckerberg, saw opportunity to gain a competitive advantage in an arena where they are notoriously weak – mobile devices – whilst taking this potential competitor under their wing
In 2006 Google bought You tube for $1.65 billion and everyone thought they were mad as the idea of video online being able to payback such an investment seemed unlikely – the latest stats show they were actually genius:
- Over 4 billion videos are viewed a day
- Over 800 million unique users visit YouTube each month
- Over 3 billion hours of video are watched each month on YouTube
- More video is uploaded to YouTube in one month than the 3 major US networks created in 60 years 70% of YouTube traffic comes from outside the US
- YouTube is localised in 39 countries and across 54 languages
- In 2011, YouTube had more than 1 trillion views, or almost 140 views for every person on Earth
Although $1 billion is a great deal of money why would they have wanted to sell Instagram for any less? They have created something that is growing at phenomenal speed and has vast opportunities ahead – this way they get to bank a fortune whilst still being involved in the development of their baby.
Founder and chief executive Kevin Systrom has reportedly netted $400m; his co-founder Mike Krieger is about $100m richer whilst Facebook and Mark Zuckerberg gain expertise, competitive advantage and 30 million more customers overnight – sounds like a picture perfect deal to me!