Facebook’s $1bn acquisition of Instagram, a photo sharing app with virtually no revenues and run by a dozen people, has raised the spectre of the dotcom bubble.
Unlike earlier Facebook acquisitions such as Gowalla, Instagram has a significant user base in its own right, of around 30 million registered smartphone owners who have been promised the favourite photo app will retain its own identitiy. But with no particularly unique technology, the cash and stock Mark Zuckerberg will lay down for the firm is eye-popping.
Instagram by numbers:
- Introduced to the Apple iOS App Store on 6 October 2010.
- Initially funded by $500,000 from venture capital firms Baseline Ventures and Andreessen Horowitz.
- Later investments, including from Twitter creator Jack Dorsey, valued the firm at $25m, then $500m (last week).
- Staff: 13
- More than one billion photos uploaded
- More than five million more uploaded every day
- Revenue: none
By way of illustration, today $1bn could also buy The New York Times Company (Q4 revenue $643m, market cap $942m). The website of its flagship title has an estimated online readership of more than 44 million per month, some of whom pay to access it, unlike Instagram’s users.
A more directly comparable online media property, the popular photo sharing network Flickr, was bought by Yahoo! for $35m in 2005, though it had a fraction of Instagram’s user base at the time.
The apparent mismatch between Instagram’s business and its valuation is inviting unflattering comparisons with earlier big money social network acquisitions: