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Forbes Likens Instagram Purchase To Myspace Deal
theodp writes "It's not that Chunka Mui isn't impressed by the smarts of Instagram CEO and Forbes cover boy Kevin Systrom. Still, Mui can't help but ask, 'How Long Before Facebook Writes Off Its $1B Purchase of Instagram?' While pundits and analysts have almost universally praised Facebook's acquisition of Instagram, Mui is less-than-impressed by Instagram's 80 million unmonetized mobile users. 'My prediction,' writes Mui, 'is that we'll look back on the acquisition as a bust — much in the same way we now view News Corp.'s purchase of Myspace, AOL's purchase of Bebo, and Excite@Home's purchase of Blue Mountain Arts.' Ouch. Mui notes that according to a recent SEC filing, Facebook could ditch the deal by paying a $200 million fee if regulators block the merger or if Facebook terminates the agreement after Dec. 10, 2012."
To me it's more like Facebook is grasping for relevance by purchasing Instagram. Facebook will fade out while Instagram will continue to gain popularity.
Clearly the acquisition of Instagram was a defensive move in the social networking space - it was starting to build a market that would otherwise chip away at Facebook - and you'd think they learnt their lesson from letting Twitter grow into a competitor
So, of course, you'd expect it to get written-down as just enough functionality is incorporated into Facebook to ensure another competitor doesn't pop up in the same "social photo" space. But also expect them to let it die a slow death (rather than shut it down) to maximise the defensive value of the acquisition.
I said this back when the deal happened.
$1B for a service used by self-absorbed 'hipsters' to take photos of food and who pay nothing for it? Nuts!
In what universe was this considered a good deal? How on earth does a company that lets users take chintzy photos with a fake aging filter worth 1000 million dollars?
There's nothing that makes Instagram a natural monopoly : at least with facebook itself, the vast userbase it has makes it a de-facto monopoly. (just like there's only space in front of your house for one power company and one set of roads, there's only time for you to put inane status updates on one social networking site).
And, worse still, Facebook doesn't have the deep pool of genius level talent like google, so it's entirely possible that Facebook will not STAY on top. But at least it has most of the user base for social networking, and people use it to get stuff done. Instagrams an internet fad that gives the product away for free.
Shit...for a cool 1000 million, facebook didn't even get a deep talent pool of genius level software engineers. They bought themselves a whopping 10 or so employees. No matter how skilled, 10 folks isn't worth that kind of scratch.
Pundits and analysts wer universally gobsmacked at the valuation, perhaps, but that's not praise. I haven't seen one saying it was worth a billion.
While pundits and analysts have almost universally praised Facebook's acquisition of Instagram.
Which pundits and analysts exactly? Because all I ever heard was how utterly insane the acquisition was.
Slashdot social media options: AIM, ICQ, Yahoo, Jabber and Mobile Text. Why no MySpace?
Well I think we all know that a making the cover of a business magazine is pretty much the guaranteed path to a bright future in the internet startup world.
What political party do you join when you don't like Bible-thumpers *or* hippies?
Apparently, "number of users" is now more important a metric than how many of those users are giving you money, or how much.
Just because they have 80 million users means NOTHING. There are at least 60m estimated users of Linux (if not a lot more) - it doesn't mean that ANY of them are generating any money for Linus et al.
If you have ONE user who's paying you money for your service, that's more valuable than 80m who aren't. Sure, you can get some ad revenue off the 80m if you play it right but that's dropping all the time, costs a lot to administer and doesn't provide massive amounts of profit direct to you. And the slightest change means that those 80m people - who have NOTHING invested in your business - will just move elsewhere. The same as MySpace users suddenly flocked elsewhere.
If they were paying customers, they would have a say, they would have a reason to stay, they would have a reason to explain to you what they didn't like and where/how you're better than the competition. If they're unpaying, they don't. The second you break the site for them (e.g. even putting an ad up in some cases), the second you lose all those users.
Users means NOTHING. Revenue means something. If your not monetizing your users, then you're not running a business and, thus, your business value is zero. It's like running a "free-to-play" game. Of COURSE you have 10m users. It's a free game. But if you can't turn X % of those users into paying customers, you're just pissing away development time and money.
It's like saying that when you gave out free samples of your cologne, a hundred thousand people asked for one. But when you charge £1 a bottle, you WILL NOT make hundred thousand pounds. Of course you won't. Anyone that thinks so is an idiot. However, if you said you had a cologne where out of the hundred thousand people, thousands of them paid you for it because it was so good, then you'd have a viable business. But still, when you start charging, you won't necessarily sell a bottle for every person who expressed an interest.
Any sale, on any stock market, that includes the figure of how many users - without context of how many were paying and/or how much profit they make per user - is worthless and only a sign that someone, somewhere is going to make a quick buck from all the idiots trying to buy the IPO by selling out extremely early before the ship sinks.
Users do not matter. I can have a hundred thousand visitors to my website, or ten thousand registered accounts. It does not mean that I would ever get a SINGLE paying customer at all, even if I changed nothing else.
I love Instagram. If they stayed private, I have to imagine they have little overhead, and making a living for a handful of employees would not be hard - they would not have to monetize their base all that much. While they do have ways to make money in the latter scenario, it likely will not provide enough revenues to make the $1B purchase price worth it for Facebook. While I like FB from the perspective of connecting with family and friends, their UX is becoming annoyingly complex. Networks such as Path, Google+, and Instagram have great UX's in comparison.
"I don't think it's selfish, to eat defenseless shellfish." -NOFX
The following explains what the popular social media currently are and what they do differently: http://www.designverb.com/wp-content/images/2012/04/social_media_donut.jpg
It's hard to monetize 80 million users of a service that doesn't do more than any other free picture posting site out there.
I bet if someone tries to charge for that, sending photos by email will become popular again.
bickerdyke
So did I. When it was announced.
80 million more people to track and shoot advertisements to. 80 million more reasons to sell advertising. It wasn't about money directly, more about selling advertising to directly.
So ... you are saying you want a car analogy?
I don't know what they're talking about, MySpace was already long dead when News Corp bought them (where dead is defined as no longer the place where everyone and their mother's cousin creates an account). I was laughing at them the day they bought it, no need for hindsight on this one!
I'm not a bird, I'm a super-advanced flying stealth dinosaur!
http://www.businessinsider.com/how-instagram-will-make-money-2012-4
"I don't think it's selfish, to eat defenseless shellfish." -NOFX
...yet clearly Youtube has had more value-add for Google than Instagram could possibly have for Facebook. Youtube apparently is paying for itself quite well these days and of course is still very, very popular and the de facto video publishing platform.
Conversely the Instagram buy was orchestrated almost entirely by Zuck and reveals a bizarre immaturity, like he was a teenager with an Amex Centurion card in a shopping mall. It couldn't possibly have been fully vetted by the Facebook board.
The deal was mostly done in Facebook shares, not cash. Instagram was only pretend $1 billion, not real $1 billion. They pretended FB shares were worth that, Facebook got the fake third party confirmation of its ludicrously high IPO value, just before its IPO. The system is known as a mock auction, where a vested third party gives a false indication of value in the thing being sold.
SEC is a joke.
The value of Instagram to Facebook has nothing to do with photographs per-se. Mining trends based on GPS location coordinates embedded within the EXIF data of the file, deriving nearby businesses from this, the time-of-day, and identifying groups of people based on facial recognition are the purpose. Then string together multiple photographs over time. These data sets are then correlated and sold. As long as people keep submitting pictures it's worth a fortune.
Microsoft got into search as a defensive move against Google. They lost money on it.
Google got into online documents and spreadsheets as a competitve move against Microsoft's moneymaker, Office. That didn't make Google money.
Google got into phone software as a defensive move against Apple. That hasn't made money.
News Corp bought Myspace as a defensive move against online. That was a disaster.
Time/Warner merged with AOL to get into "the Internet". That was a disaster and they broke up.
Google got into social as a defensive move against Facebook. So far, that hasn't worked out too well.
Facebook got into photo sharing as a defensive move against Yahoo's Flickr. That didn't work.
A large part of Instagram's value exists in the experience and strategies that allowed an initial three employees to manage a scalable, distributed application serving 10s of millions of customers. If Facebook is able to successfully incorporate Instagram's knowhow into their current stack, they could see significant savings in operations and management. That, alone, is worth billions of dollars.
More on Instagram's architecture...
Those are the wrong comparisons.
Try:
Time Warner's merger with AOL.
Any fool that bought facebook at IPO . . .
hawk
Facebook itself is kind of like that, except there's actually a network effect to keep people on it.
This network effect is limited to the groups or super-groups of people on it.
People not affiliated with any of them won't necessarily flock to FB for no reason.
I'm not speaking about geeks who are anti-anything-social.
I'm speaking about generations. You are on Fb, because your friends are on it, your family is on it, your significant other is on it, and so on.
Your kids, on the other hand, go through a different situation: their main social circles are their school friends and other of similar age group. Not all of them are born with a FB account. They will gather around what is the most popular among their peer.
Little Tommy doesn't need to be on the exact same network as mommy and daddy or his school teacher, etc.
Little Tommy needs to be on the same network as Little Sally.
And as mentioned above, it happens that the current youngest generation, which doesn't have much ties to the mass of people on FB (aside from ties like "child/parent". A link that some would of them like to do without, and other don't need online as they enjoy everyday IRL), gathers around other services: Twitter and Tumblr are all the rage, lots don't even have a FB account.
Once this new generation grows up, Facebook will be the next MySpace, Blogs, Geocities, etc. It used to be all the rage, now it shrinks back to basically only what is needed.
"Sufficiently advanced satire is indistinguishable from reality." - [Tips: 1DrYakQDKCQ6y52z6QbnkxHXAocMZJE61o ]