Instagram really worth $1 billion?

Facebook just announced that it purchased Instagram from $1 billion in cash and stock - what just happened here? Did we miss something? Is Facebook going to continue these purchases? I would bet yes, and here is why:

Facebook is a new media company that is about to go IPO; it is media offering is based on what it knows about you so naturally it wants to improve the quality of this information and create value for its share holders. Here is how it would do it:

  1. It will improve it is insight on who you like seeing photos from. That gets Facebook a dramatically better photo "graph." That keeps it ahead of Google+, which wooed photographers strongly in its first seven months on the market.
  2. It knows your geographical location when you shoot the photo. That is very important info for Facebook to know about you and your interests, gives it a better context.
  3. It positively identifies your hobbies and passions. If you are a skiier, you take pictures of snow and skiing. If you are a foodie you take pictures of food at high-end restaurants. If you are into quilting, a lot of your photos will be of that. If you are into mountain biking, the same. Facebook's databases need this info to optimize the media it will bring to you. This information is worth a lot of $$$$$. Imagine you're a ski resort and want to reach skiiers, Instagram will give them a new way to do that, all while being far more targeted than Facebook otherwise could be.
  4. Instagram will let Facebook develop a new kind of Open Graph advertising. One where Facebook will be able to offer mobile developers a lot of money in return for opening their apps up to Open Graph. Venture capitalists in Silicon Valley are quite excited over this new potential revenue stream, so having lots of VC buy-in will be very important. Imagine that Benchmark now "asks" all of its member companies to support such a new advertising scheme? This could result in billions of revenues for Facebook and member companies.

So in essence this is what just happened - a company established in 2010 got purchased by an Internet giant for a billion dollars with the hope that it will recoup this amount later on when it goes IPO and it just might 😉

Comments (1) Trackbacks (0)
  1. Great article!
    I also think that this is an unofficial declaration of 2nd dotcom boom hopefully not in the form of a bubble this time.

Trackbacks are disabled.