April 10th, 2012
06:44 PM GMT
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.