Monday, 16 April 2012

Facebook likes Instagram. A billion times over.

Aware am a little bit behind on tech news, but a week on the decision of Facebook to spend USD$1bn in cash and shares on Instagram is no less staggering - given that Instagram is a company with almost no revenue and just 13 employees, or at almost USD$80m for each of them if it is an 'acq-hiring' buy.

Yes of course Instagram, the social photo sharing app, has 30 million active users and hence they are buying into its already existing user base as well as acquiring its team to improve photo functionality on Facebook, but it's still a heck of a lot of money and is leading to more speculation about a further dot com bubble being about to burst.

Hailing the announcement Facebook chief executive Mark Zuckerberg said:
"This is an important milestone for Facebook because it's the first time we've ever acquired a product and company with so many users. We don't plan on doing many more of these, if any at all."
Instagram has built their user base from Apple sheep and only recently launched an Android app (resulting in more than a million downloads in its first 24 hours) which allows users to manipulate photos and apply effect such as sepia tinting before sharing them online - and its founders are laughing all the way to the bank with graduates Kevin Systrom and Mike Krieger taking home around USD$400m and USD$100m apiece from the deal.

Speculation suggests that Google have been sniffing around Instagram over the last month too, which may have leaded to the inflated price. Gartner analyst Ray Valdes said:
"You can view the $1bn as an insurance payment against a possible mortal threat if it fell into the hands of one of its competitors. If Facebook is valued at $100bn, 1pc of that figure seems like a reasonable payment."
Given the other recent big deal in the social space - Twitter's purchase of Posterous - it does make you wonder as to whether what's next is someone else making a massive buy or a big name going tits up.

Instagram will - for now at least - continue to run as a separate application and a fascinating analysis of the deal by Matt Rhodes of Fresh Networks can be found here if interested.

Update @2053: BBC News website editor Tim Webber has also published his analysis of the deal here.