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Facebook, Instagram, Ben Bernanke: Thank You For the New Tech Bubble

Posted by Soulskill on from the grab-some-popcorn dept.

pigrabbitbear writes "Those who continue to inflate the tech bubble will be quick to remind us all of how they've learned from the past. That this time, it's simply different. They do have a point. Silicon Valley (and Alley) have matured. Startups these days are focused, driven, and efficient, creating products that people actually use. In a period of less than a year after its launch, Instagram was used by 5 million users, who by August of 2011 had uploaded 150 million photos. But even with these impressive results, it's impossible to ignore the fact that many of the fundamental economic factors that led the first bubble remain." A couple other readers contributed similar articles — Instagram's sale seems to have solidified the idea for many that we're in the midst of another tech bubble, though some are more certain about it than others.

17 of 124 comments (clear)

  1. focused and driven by Anonymous Coward · · Score: 4, Insightful

    yeah, they're focused on money and driven by greed.

  2. Revenues? by khasim · · Score: 5, Insightful

    So it sold for a billion dollars.
    It must have had some serious revenue to make it worth that much.

    It didn't?
    Then we've learned nothing from the last bubble.

    1. Re:Revenues? by macromorgan · · Score: 4, Insightful

      Doesn't necessary have to have revenue of a certain amount (probably net profit in the neighborhood of 50-100 million annually would value it at a billion), but it does have to be worth that money to Facebook to justify the purchase price. Perhaps Facebook was afraid that Instagram was quickly becoming the go-to social network for sharing photos. Taking them out of the equation would have been worth it. Of course since we're asking these questions about valuation, I have reason to believe we at least learned SOMETHING from the last tech bubble.

    2. Re:Revenues? by Sir_Sri · · Score: 4, Insightful

      Not necessarily revenue, but *potential* revenue, talent, or IP, and a customer base that wasn't already part of facebook.

      He may also be seeing something that with the right investment will be worth hundreds of millions in revenue.

      On talent: Deals like this usually stipulate that the leadership of the company being bought (in this case I'd guess that's most of the 13 employees) have to stick around for while or they lose shares or the like. He might be figuring they have a vision that can translate into users, or facetime on facebook, which would translate into revenue. He's also valued at probably 20 billion dollars so figuring someone else should be worth a hundred million wouldn't seem out of place.

      IP. IP seems unlikely, but Instagram may own, or be able to acquire intellectual property rights on what they're doing, and that could put facebook in a bad position if it's dealing with them by duplicating their service.

      Instagram customers may not be facebook customers. When you have 800 million users it's pretty hard to see where you're going to get many more from. There are only 7 billion people on the planet, half are too old or too young to be on facebook, another large blob are too poor, or illiterate or both to have internet access and facebook. Leaving, on a good day, ~2 billion potential facebook users. And some of them really don't like facebook (including half the /. crowd) so they won't be customers no matter what. He may be figuring that for a billion dollars he can increase his 'user' base from 800 - 850 or 900 million, which would increase facebooks value by 5-10 billion dollars.

      In terms of future revenue he may be seeing something the rest of us aren't thinking about too much. Ads are probably worth more the more time you're on a page. Instagram may attract more facetime for existing users, as in they'll be online longer, and therefore can get more ads spewed at them, additionally getting them in the facebook team early would be preferable to having to buy them out later when they may be worth 2 billion dollars. He may know what we don't, which is how much an extra minute of time on facebook is worth, and how many minutes people are spending on instagram

      Facebook is probably also paying largely with facebook stock. That means the valuation is a paper one, not a real one. You work for facebook, you get facebook stock, and if facebook tanks they aren't on the hook for anything particularly cash wise.

      And he might just figure with the right investment there's could be a product worth selling.

      Of course he could be completely wrong on any or all of those counts. But this is a good time for potential future shareholders to see just how much power "Zuck" really has at facebook, and whether or not they want to be involved with that.

  3. Products by 0123456 · · Score: 4, Insightful

    "Startups these days are focused, driven, and efficient, creating products that people actually use."

    Creating products that people use is easy. Creating products that people will pay to use is the hard part.

    1. Re:Products by Anonymous Coward · · Score: 3, Insightful

      Creating products that people will pay to use is the hard part.

      Instragram wasn't created for the monkeys shooting pictures at each other. It was created for the advertisers that pay for monkey's eyeballs. They do indeed pay.

  4. Easier and cheaper ways to do that. by khasim · · Score: 5, Insightful

    Perhaps Facebook was afraid that Instagram was quickly becoming the go-to social network for sharing photos. Taking them out of the equation would have been worth it.

    Or you dump 1/10th of that money ($100 million) into creating your own app that does the exact same thing and is tied to Facebook.

    And you've saved $900 million. Which can be used for other projects or acquisitions.

    Of course since we're asking these questions about valuation, I have reason to believe we at least learned SOMETHING from the last tech bubble.

    If we have, I don't see it.

    The dotcom bubble was all about the IPO or selling to someone bigger and becoming an instant multi-millionaire.

    We have the huge IPO's again and now we're seeing the massive purchase prices of systems without viable revenue streams.

    1. Re:Easier and cheaper ways to do that. by Mitreya · · Score: 4, Insightful

      Or you dump 1/10th of that money ($100 million) into creating your own app that does the exact same thing and is tied to Facebook.

      They eliminated a competitor and (more or less) bought their user-base
      The actual code isn't worth nearly as much.

  5. Simple Explanation for Instagram by FsG · · Score: 5, Interesting

    For anyone who's still scratching their head about the instagram purchase, here's something to think about.

    At least one of Instagram's employees, Philip McAllister, was at Gowalla when it was picked up by Facebook less than 6 months ago.

    That guy might be the luckiest bastard in the world, having worked for 2 tiny companies whose only significant accomplishment was getting acquired by Facebook. On the other hand, Zuckerberg could just be funneling company money to friends?

    --
    I made a PHP/MySQL library that prevents SQL injection & makes coding easier!
    1. Re:Simple Explanation for Instagram by hardtofindanick · · Score: 3, Informative

      Zuckerberg could just be funneling company money to friends?

      +Adam D'Angelo

  6. How many of the 5 million users are spambots? by tokengeekgrrl · · Score: 5, Interesting

    I'm always perplexed why the quality of the number of users is never challenged.

    How do you know a ton weren't generated as apart of some marketing strategy?

    Or rather, how can you NOT suspect that a significant portion of them aren't fake?

    Has the issue of verifying online registration as belonging to an actual, unique person been solved with absolute certainty while I wasn't paying attention?

    - tgg

  7. Crucial difference from Bubbles Past... by dryriver · · Score: 3, Interesting

    The last few Tech Bubbles popped when the U.S./World Economy was doing alright. And even then they did tremendous damage. If this one pops, it will pop in the middle of an already quite severe Global Economic Crisis. And that won't help make things better. As for Facebook & Twitter... I'll eat my hat if by 2015 either one is worth 1/5th of what it is currenly valued at. Both are places where lots of people with time to ki hang out because they are Free & Social & Trendy. If the World Economy manages to get back on its feet in the next 3 years, I doubt that so many people will hang out at these free "Social Hangouts". Facebook is seriously boring. Twitter is a mere novelty that may go out of fashion, globally, within a span of a mere few weeks. I wonder what will replace FB&Twitter 3 years down the road. As for "Instagram", only a terrifically stupid person (like the Zuck?) would pay 1 Billon for a company whose greatest achievement is throwing a few nice looking photo filters togethers and letting users post images online. 1 Billion Dollars invested differently would buy - litterally - thousands of unique, custom-developed Photo Filters. Its Bubble-Time, all right, judging by what is happening. And its going to burst eventually. My bet is on mid-to-late 2013, or maybe early 2014. It all depends on how the Zeitgeist changes in the next 12 - 18 months.

    --
    Why did the chicken cross the road? Because Elon Musk put an AI chip in its head.
  8. Not particularly different... by Junta · · Score: 3, Insightful

    Startups these days are focused, driven, and efficient, creating products that people actually use.

    Having users with no business plan to monetize that popularity isn't particularly different than having no users at all... I think the same held true in the late 90s, there was the interest and the users, but a lack of sold plans to translate that into something economically feasible.

    --
    XML is like violence. If it doesn't solve the problem, use more.
  9. Big deal. by superdave80 · · Score: 4, Insightful

    ...creating products that people actually use.

    So? People using your product isn't the point of business. Making a profit off of people using your product is the point. That's why we had the dot-com bubble: nobody could make any money off of this new-fangled internet thingy.

  10. Re:We != Mark Zuckerberg by hemo_jr · · Score: 3, Funny

    And he talked them down from $2 billion, thus showing his haggling skill and business acumen.

  11. Replacement for advertising-based startups by istartedi · · Score: 3, Insightful

    Any startup where advertising is the stated (or likely will become) the source of revenue, could be replaced. With what? With something like networks (in the old sense, as in TV networks) where "producers" create "shows" that run on the network. In other words, "Facebook, brought to you on NBC Internet by Sudso. Sudso. The soap that cleans your mind".

    The current process of angels, VCs, etc makes a lot of money for some people. OTOH, it seems rather inefficient compared to the old network model. If Groupon were a gameshow, it would make money for the network, give away some prizes, and eventually get cancelled when people lose interest. Ditto for myspace. The whole process of taking these shows through early rounds all the way to IPO is just way too cumbersome.

    As an added bonus, the "shows" might have a greater incentive to support things such as porting your data to the next "show", whereas in our current realm they have an interest in making their site "sticky".

    I don't think privacy would be any better or any worse.

    This model faces an uphill battle in terms of recruitment, I think. Producers expect the IPO pot of gold at the end of the rainbow. A studio job won't lure the big talent as easily.

    I could be waaaay off the mark of course. Just idle speculation on a Friday afternoon...

    --
    For all intensive purposes, "whom" is no longer a word. That begs the question, "who cares"?
  12. We live in a fraud driven, violently unstable.. by Paracelcus · · Score: 3, Insightful

    We live in a fraud driven, violently unstable economy, a massive Ponzi scheme masquerading as an economic model!
    It doesn't work, it can't work!
    It WILL destroy itself.

    --
    I killed da wabbit -Elmer Fudd