What a strange week it’s been in the tech world
Facebook snaffles up Instagram, a photography app that brings in zero revenue, for (wait for it) a whopping $1 billion… while Yahoo announces that they’re going to have to lay off 2,000 workers.
Yahoo is an interesting company. For a time they were the darlings of the Internet world but when Google, the new slick kid on the block, raced past them with they wacky, streamlined ideas they suddenly seemed to be paralysed by indecision and inaction.
It can happen to the most dynamic companies. Too much bureaucracy at the top level killing off innovation (not to mention drive) and good ideas and passion get swallowed up by meetings about meetings. Before you know it your competitors have just released another shiny new feature…
I secretly gun for Yahoo, I think they’ve got a great asset in Flickr which I use on a daily basis and in my opinion their free Yahoo mail service is the best browser led email available. I hope during this no doubt painful streamlining they’re able to refocus and knuckle down on reinventing themselves as the exciting, game changing company they once were.
Meanwhile Facebook drop their pants…
At the same time as Yahoo tighten their belts it seems that Facebook are doing quite the opposite. In fact they’re not even using a belt. Facebook is naked and proudly dangling its assets for the world to see.
This week they snapped up Instagram, an app which lets iPhone users take vintage style photos, for a whopping $1 billion. The most bizarre thing about this acquisition is that Instagram is a ‘free app’ and in other words does not directly pull in any revenue from software sales.
Clearly as an app, the $1 billion price tag is vastly over-inflated. The most useful element of the software (outside of making photos looking 30 years old, which many other apps do) is that it makes sharing photos a doddle. This cannot be underestimated and it does this far better than Facebook’s own photo sharing facilities.
However surely the real reason for the hefty price tag is Instagram’s vast country sized user base. In less than 2 years they’ve scooped up more than 28 million users. That’s what Facebook are buying here. They’re spotted this unstoppable social media juggernaut and rather than try to compete with it they’ve got out the cheque book and absorbed it.
But still… $1 billion for 28 million names?
At $1 billion it means they’re paying $28 for each and every name. Assigning a ‘per name’ value is something most direct mail and online marketers will be very familiar with. Every marketer in the land with have a different idea of value and in some industries you’ll have people paying us much as $50 to $100 a name (particularly for some high end financial services) where in others $1 – $2 will be the order of the day. Value is determined by how much, on average, that one user will be worth. In other words Facebook have to decide whether than ONE Instagram user is likely to spend more than $28 in sales or through advertising clicks.
I’d be suprised if these names were worth a tenth of that. Why? Well, I’ll be unpopular for saying so but I think the whole retro photography digital filtering craze is a fad – and I just don’t think it has got a long term shelf life.
Professional photographers (who are traditionally big spenders and woudl be names worth having) tend to be pretty snooty, rightly or wrongly, about these kind of apps. They argue that they simply ‘prettify’ bland images without any particular skill or vision on the photographer’s part. This may not be a problem if Instagram are able to adapt and evolve with the trends but I still think that at best this has been an extreme ‘luxury’ purchase for Facebook.
The return of the Dot Com bubble anyone?