Facebook, the social network that’s risen above its contemporaries as the success story of the recent social internet age, recently announced that it was purchasing social photography sharing service Instagram. Nothing terribly surprising there; these kinds of business transactions take place all the time.
What made headlines was the purchase price, with Facebook agreeing to purchase Instagram for the rather healthy (if you’re the owner of Instagram) price of one billion dollars. Instagram’s got an estimated 30 million users; that means that Facebook presumably values each user at around 33 bucks a piece. That’s quite high for a service that the users could always opt to stop using straight away. With the news of Facebook’s acquisition of Instagram, many threatened to do just that.
One billion dollars for a company that allows people to share photos from mobile devices seems like a lot of money, and it did raise the question in many circles as to whether Facebook had overpaid for Instagram, as well as raising the spectre of the 1999 dotcom “bust”. Back in ’99, many companies that labeled themselves as “Internet” companies — whether they were selling paperclips or petfood — were massive overvalued, leading to an inevitable bust when the real bottom line of those markets was realised.
Was one billion dollars — a mix of cash and Facebook shares — a lot to pay? It certainly was, but it perhaps wasn’t a matter of overpaying. Facebook wasn’t just buying Instagram in order to get access to its photo sharing users; it was also doing so in order to buy out a competitor. Again, that’s business, and possibly smart business (although only time will tell on that score).
The internet market has matured significantly since 1999, but Facebook’s buyout of Instagram is about more than just a CEO seeing some nice photos and opening up his wallet; it’s also a strategic move around mobile web applications.
One interesting business parallel popped up at the same time as Facebook was buying Instagram, as Microsoft purchased a number of patents from AOL — including most of the patents that revolved around the now-defunct Netscape Navigator browser. Back in 1999, Microsoft was being investigated by the US Department of Justice over anti-trust allegations relating to its own browser and the position of Netscape relative to them; in 2012, Microsoft (in essence) owns Netscape.