I dont know if any of you young pups remember it, but years ago there was an up and coming titan of the Web called Excite that went big the way Facebook has, and as soon as they got mega cash wealthy, they bought Blue Mountain Arts, a popular greeting card site, for $780 million. The day that happened, I said, “Those people are idiots, Excite is gonna tank!”
Now I don’t know if Facebook is gonna crash and burn as dramatically as Excite did, but there just seems to be something about being a cash-rich Internet firm that just did a big IPO that was very successful that makes you wanna buy pretty much useless art-related websites for a billion, or three quarters of a billion, dollars. I dunno what it is, but the parallels are just too close to ignore.
The hilarious bit is that Instagram completed a venture round with a valuation at $500 million two days before Facebook wrote them a $1 billion check. Easiest 100% return those investors ever made.
Excite tanked because they banked on having a user base that they failed to deliver. “We’re going to have a million more cable customers with the Excite portal as their home page within a year!” “Uh, can’t help but notice that your plan is physically impossible.” “Well, uh… we bought a super-popular but unprofitable e-greeting company, and we’re going to transfer their base to Excite somehow.” “Yeah, we’ll just advertise somewhere people will see it, thanks.”
While I wouldn’t say that the Instagram purchase is genius, I don’t think it’s ominous. Facebook already has the established base that Excite bet everything they could attract.
Facebook has four billion dollars of revenue and has embarrassed their most serious competitor. (Google.) Excite’s users and profits were hopeful projections, and they were crushed by their competitors.
Excite’s acquisition of Blue Mountain was a desperate attempt to deliver promised ad impressions - Facebook picking up Instagram for such a handsome price may be frivolous, but it isn’t comparable at all.
So I’ve been around awhile, long enough to remember PINE and ELM and BBSs and the day that pictures first appeared on my internet browser. And I don’t remember Excite. It certainly wasn’t as big as Facebook; I don’t see the comparison.
I wonder if there are motivations behind this other than “let’s throw away $1 billion”. Facebook is battling Yahoo in an epic patent fight where Yahoo has a clear edge. One of the ways you can defend yourself in this is by owning similar patents which is done by having a large patent portfolio. Facebook has a very small patent portfolio, especially compared to Yahoo, Microsoft, or even Google.
Given that Microsoft bought $1.1 billion worth of patents from AOL, and that MS is a relatively large stakeholder in Facebook (MS owns 1.6% of outstanding shares worth an estimated $1.3 billion), and that these two purchases happened on the same day… I don’t know, I don’t believe in coincidences.
The difference is that Excite’s underlying business model didn’t work. Excite didn’t go bust because they bought out worthless dot-coms; it’s because they were worthless.
I might misunderstand you, but it’s not clear to me that Instagram would have any patent portfolio to speak of — let alone one worth $1B. We’re talking about a small startup, one whose offering amounts to a set of prepackaged image filters with the ability to share the resulting images on social networking sites. There’s prior art here out the wazoo.
That said, it’s well done and (at least in the iOS space) a very popular application. Worth a billion bucks, I dunno, but Facebook wants people to remain devoted to sharing ever-widening portions of their lives; acquisitions like this could be winners. Rumors of Excite 2.0 are as yet greatly exaggerated.
This is nothing new; during the dotcom era many of the companies made foolish, over-valued acquisitions (such as Yahoo’s purchase of Broadcast.com for five billion in stock, after which Yahoo did virtually nothing with the acquired company).
If Instagram increases traffic to Facebook, perhaps the purchase is justified.
I kind of saw the purchase of Instagram as trying to avert what may be coming down the pike for Facebook. Instagram seems to be an easy way of updating your Facebook content without actually accessing Facebook. I think that the future may hold a bunch of applications that can access Facebook content without actually interfacing with Facebook. Thus Facebook becomes a content farm with nobody actually visiting it.
I don’t think that’s it. There are lots and lots of services that hook into Facebook to let you submit content without going to the website. What Facebook cares about is that they’re the central repository of that content. That everyone who wants to view content comes to them.
But, then, I don’t have a good theory for this acquisition.
Facebook countersues Yahoo for infringing on its (Facebooks) patents, naming Flickr outright, then 5 days later overpays for a company specializing in photo sharing while in the same time period a minority owner of Facebooks (and one-time suitor of Yahoo) buys 800 patents from longtime internet player AOL.
I just don’t think the three events are coincidental. Imho, of course.
Can someone explain to me— a reasonably tech-savvy person who’s never used Instagram— exactly what makes it so groundbreaking or valuable? It’s a photo sharing site that lets you apply filters, OK… is that it?
I am a moderate instagram user, and mainly it provides an easy way to get “cool” and “retro” looking photos out to your friends, fast. Basically status updates without the text, and it can make crappy pictures look better. It is pretty simple, and I’m a little agog at the price tag.
I was listening to NPR talk about this, and they said something along the lines of Facebook’s photo sharing capabilities for mobile is not the best. Tons of people use instagram to post photos to facebook instead, so they wanted that technology which is better than theirs.
This definitely applies to me. I read my instagram feed more than my fb one, even though it’s the same people/content.