So, maybe there is a tech bubble….

Rob Borley
on 11 April 2012

It seems to be silly season again in the world of tech. After I suggested that there wasn’t really a bubble in the world of mobile apps Facebook go and spend  $1 billion on Instagram. That’s right $1 billion! This move seems to make no sense at all.

Let’s be clear on what has happened. Instagram is a very popular photo sharing network. With the application of some very simple filters you can make even the most boring and poorly executed shots look interesting. Launched in October 2010 for iPhone (only last week for Android) Instagram has 30 million users uploading 5 million images a day.

Free, Free, Free

The app is free. The service is free. There is no advertising. Instagram has never generated any revenue whatsoever.

Instagram has 13 employees. Many of whom were only employed recently.

At $1 billion it values each of the 30 million users at about $28 per head

This is where I’m confused. Facebook are not buying the users. Most of those will already be Facebook account holders. Facebook are not buying the app. They could build their own for a fraction of the cost. They are not buying the people. With 13 employees that would value them at $77 million each and that really is silly. So what are they buying?

It’s all about mobile growth

Yes, Facebook has purchased a growing social networking rival. But I don’t think that this is their main concern. Instagram was never going to threaten Facebook and many of the images are shared on Facebook anyway.

What Facebook has purchased is some extra traction in the mobile world. Facebook is a global monster with over 800 million users (Q4 2011) but its days of explosive growth are behind it. Part of the reason for this is that Facebook is still seen by many as something that you engage with on a traditional desktop or laptop computer. With the sale of smart mobile devices ever increasing and their use online expected to outstrip that of their traditional cousins by 2013, Facebook need to increase engagement on mobile if it is to continue to grow.

Still, $1 billion is a large price to pay.

Tech bubble anyone?

Those nice people at Instagram have done quite well out this deal. The three venture capitalist that doubled their $50 million investment in under a week have done quite well out of it. The founder of Instagram, who picked up $450 million for two years work hasn’t done too bad either.

A bubble?

Global giants such as Facebook are not being complacent about their success. They are taking the growth of mobile very seriously indeed.  This is the message that all organisations can take from this deal. It may be over priced. It may turn out to be a stroke of genius. But it is certainly a signpost to the coming dominance of mobile internet access. Is your organisation ready?

If you want to discuss your mobile strategy then feel free to get in touch with Rob at Dootrix.


Subscribe to our newsletter for free advice delivered to your inbox on a fortnightly basis.

Related articles