From the Editors
It's official. One billion dollars will buy Instagram, or a pile of patents from AOL. That's how much Facebook reportedly paid to acquire Instagram, maker of the eponymous snap-and-share photo app for smartphones, and what Microsoft spent on a mess of patents that AOL had. Now everyone is contemplating the value of a billion. HuffPo for some reason calculated what a billion dollars might purchase in college expenses (probably the more low-paid interns you hire, the more of your reports will relate to college). It determined that a billion bucks could pay 12,113 professors for a year, which doesn't seem like a bargain, or cover room and board for 250,000 students (we'd still apply for financial aid). Ewan Spence writes at his Forbes blog that these billion-buck deals "do little more than set down the big bind in the high stakes VC poker of Silicon Valley. You want to play? Find a billion. You've built a mobile phone application and it has some users? It's nothing till you can sell it for a billion."
ReadWriteWeb isolates eight factors behind the amazing ascent of Instagram: "In just 551 days, the photo-sharing mobile app zoomed from zero to 30 million-odd users, and 10 million U.S. visits by March 2012, up 1000% since December 2011. Its valuation outstrips that of the 116-year-old New York Times." Among the things Instagram did right in order to "win the startup lottery": it "didn't get creepy" about sharing private information, and its interface "stayed junk-free." TechCrunch says a new floodgate has opened for tech startups. "Two and a half years ago, Mint.com was acquired for $170 million, and everyone thought that was an amazing deal following the great recession. Now, a fledgling company with a small team gets acquired for $1 billion. My best guess is that it is about to get crazy." Where the Circles Meet wonders whether Facebook or Microsoft got a better deal for its gigabucks and concludes "the bigger winner in today's spending spree appears to be Microsoft. It gets a whole bundle of patents that are bound to come in handy at some point in the future both offensively and defensively. While Facebook's purchase of Instagram comes with great engineers to help retool the Facebook photo experience, leaving Instagram as a standalone app poses the problem of cannibalization of Facebook's photo options." But the big winners are the folks who received the billion, Instagram and AOL. "Instagram was an app that had no way to generate revenue," so it makes out like a bandit here.
Patentology looks at these two deals and other recent acquisitions and analyzes: "All of these deals have in common the fact that the entire valuation is based on intangible assets. How do you put a price on a bundle of patents? On a team of great employees? On a loved brand? Or on the future potential of a technology? Are the recent valuations justified, or are we heading for another industry meltdown similar to the 'dot-com' bust of March 2000? After all, the Zuckerbergs, Systroms and Kriegers of the world could be excused for failing to learn the lessons of history - they were little more than kids at the time!" Epicenter says we can turn off the bubble alarm and safely return to our desks. Facebook's paying $28 for each of Instagram's 35 million users was a sensible buy and a much better deal that far stupider tech acquisitions of the past. Concurs Rick Webb at Betabeat: "I am having a hard time moulding the Instagram purchase toward a bubble narrative. Facebook's IPO is estimated to value the company at a hundred billion dollars or so. It's really not that much money to them." Meanwhile, some devoted users of Instragram are a little glum. "Are the golden days of Instagram over?" writes Jenna Wortham at Bits: "The sale of Instagram brings a harsh reality into focus, the realization that the secret rooms or private spaces online where we can share, chit-chat and hang out with our friends are fading. The few safe havens that do exist are quickly being encroached upon or are next on the shopping list for a company like Google, Apple or Facebook." Paul Ford nicely sums up some of the user regret at Daily Intel: "For many Instagram users it's discomfiting to see a giant company they distrust purchase a tiny company they adore -- like if Coldplay acquired Dirty Projectors, or a Gang of Four reunion was sponsored by Foxconn."
But cheer up. Sometimes there are happy endings in the valley of dreams. The dramatic and touching story of a smaller tech acquisition has become a sort of Schindler's List of stock options. Business Insider reports on the fairytale story behind the recent $210 million buyout of mobile app developer OMGPOP, whose Draw Something had become a craze. Apparently, the startup was on its last legs just months ago and had to make layoffs to survive. When the new app began to take off and the buyout looked imminent, CEO Dan Porter scrambled to re-hired the laid off workers so they could cash in. "He was literally negotiating the deal and jamming the re-hires back into payroll....Their options kept vesting and they benefitted from the sale. Porter didn't have to do it. It was just the mensch thing to do."