April 10th, 2012
06:44 PM GMT
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Editor’s note: The Millennials are a generation that are constantly plugged in and moving fast to make their mark on the world. CNN’s Quest Means Business is tracking four of them. In this guest blog, Millennial Joe Braidwood questions Facebook's $1 billion purchase of Instagram.

(CNN) - Yesterday Mark Zuckerberg casually penned 352 words on his Facebook Timeline to let the world know that he’d agreed to buy the popular photo-sharing app Instagram.

My first reaction was that this was a great move - photos are the most shared content on Facebook, and injecting some great engineering and vision into that part of their product portfolio, while also acquiring a big community of passionate users, makes perfect sense.

Then I read the price on VentureBeat - $1 billion in cash and stock. No, must be a typo. I checked TechCrunch. One billion. 

Don’t get me wrong, Instagram is a fantastic app. The user interface for applying vintage effects to photos is the best I’ve seen, and their community is enormous, with around 30 million iPhone users and (in the last week since launch) five million on Android. That’s surely worth something.

But it simply can’t be worth a billion dollars. The company is only 18 months old. There are only a dozen employees, about a third of whom joined in the last few months. The service has no proven business model. It’s just a well-designed photo app and a fun network for sharing pictures between smartphone users. I don’t understand.

The only plausible answer is Instagram isn’t really worth a billion. People have spoken about the new tech bubble for some time, and that we’re nearing a burst. I’ve shrugged it off, because it would really harm the industry I work in, and I really don’t want that to happen. But this is the closest proof I’ve ever seen that things are completely out of hand.

Instagram wasn’t really acquired with a billion dollars. It was a combined offer of stock and cash, and it’s that stock that’s the killer. Facebook stock is currently so inflated in value that Zuckerberg now thinks he can buy a photo app for a billion dollars. The Facebook IPO later this year is likely to see the beginning of the end to these crazy valuations. Venture capitalists and so-called “superangel” investors all have a vested interest in seeing valuations go through the roof. But an open investment market is likely to send a shocking blow to the industry’s perception of Facebook being worth $80-100 billion. And as it does, the house of cards is likely to collapse, if not at first, at some point in the near future.

It’s a frightening prospect, because there’s now an entire ecosystem of brilliantly innovative businesses being sucked in to the hyperinflation that crazy valuations like this one are causing. I’m even pondering a U.S. move to grow our business, but with the prospect of an earth-shattering collapse, it’s a daunting prospect indeed. Let’s hope the InstaBubble is in no danger of bursting any time soon. Let’s hope Mark knows something I don’t.

soundoff (15 Responses)
  1. Pietro

    Unfortunately, I think you are right.

    April 11, 2012 at 6:51 am |
  2. Pozzocafone


    April 11, 2012 at 7:26 am |
  3. hebrewlanguage

    People have really short memories., remember the embarrassing 'dot com' bubble? To refresh your memory (taken from wikipedia): broadcast dot com bought by yahoo for 5.9 billion – defunct, boo dot com spent 188 million in six months trying to create an online fashion store, companies stocks went up by adding the prefix -e to their names, infospace stock selling for 1,305$ a share, tons of defunct companies buying super bowl advertising for 2 million a minute. People can't remember 11 years?

    April 11, 2012 at 8:18 am |
  4. Rethink

    FB sells t-shirt ads and a few pay-to-play games. It's like a really bad version of Yahoo!. There is no way it should be valued at $80-100 billion.

    April 11, 2012 at 9:34 am |
  5. Bill


    April 11, 2012 at 10:42 am |
  6. irenechapple

    Thanks Bill!

    April 11, 2012 at 11:16 am |
  7. Halwits

    1 billion dollar for Instagram is a heavy price but Facebook owners are not a kid now. They might be seeing a long term gain in this deal.

    Ship Management

    April 13, 2012 at 11:29 am |
  8. Simple Fact

    Unless you ship something to a customer, it is not possible to make a profit on the Internet. Internet-only companies are either losing investors' money, or having the loss absorbed by a larger owner (like CNN.com is).

    April 13, 2012 at 1:52 pm |
  9. the logical centrist

    You are right. And there are countless other companies that are only worth a fortune on paper. They will either burst or we the people will use their products enough to keep them going. If we keep them going, we are the fools.

    April 14, 2012 at 5:49 pm |
  10. sameh

    learn english for free by video

    April 16, 2012 at 12:57 am |
  11. Claudio

    One billion dollars. What is wrong with our brains. There is no way this application could be worth ONE BILLLION DOLLARS. Again ONE BILLION DOLLARS. Do you even remember when 1 million dollar was worth a lot.
    This can not be right.... looks very bad for the future.

    April 16, 2012 at 9:47 pm |
  12. 1999

    dejavu 1999!

    April 16, 2012 at 11:29 pm |
  13. instablowbacksabiotch

    One way to look at it might be that FB bought 35 million little content factories for $28.57 each (or maybe a shot at being slightly less banal?), but if the outraged backlash against this acquisition that's apparently not being covered by CNN continues then that relatively low price-per-new-customer (and more importantly, all their juicy data) might go up considerably.

    April 17, 2012 at 1:40 am |
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    June 26, 2012 at 9:21 pm |
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    Helpful info. Lucky me I found your website accidentally, and I am surprised why this twist of fate did not came about earlier! I bookmarked it.

    July 10, 2012 at 9:09 pm |

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About Quest Means Business

Quest Means Business airs Monday to Friday, 1600 New York and 2100 London, and is hosted by Richard Quest.



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