Google bought YouTube for $1.65B when YouTube didn't have business model. It was critiqued a lot because of this, but it established Google as a dominant player in video space and it's ripest fruits might be seen in coming years when media consumption moves more and more to mobile.
I grant that $1B sounds a lot for Instagram and it is harder to see similar commercial value in photos than in videos.
My personal take is that in addition to friend connections, already posted photos could be the strongest lock-in for users that Facebook has against future competitors.
Trust me, Youtube is very profitable. Major multi-national brands have to pay $100,000's in Google Adword purchases to have their own branded channel. And if you want to change the look of your channel? Pony up another $100K.
YouTube just recently turned profitable in the last two years. It was hugely unprofitable with an unproven business model at the scale at which it was bought.
yeah, and Yahoo bought Flickr for hundreds of millions. And Flickr never became a profit center for yahoo. Now, Yahoo is laying off thousands of workers, and is close to dead poool, because of all its malinvestment in web1.5 (flicker, geocities, delicious, etc).
Video has a higher value proposition than photos. Look @ how hard flickr has struggled turning photos into a sustainable business model.
I'm comparing apples to apples. You're comparing apples to oranges.
You could have said the same about Yahoo acquiring Facebook itself for $1 billion, if that deal had happened. It's clear now who would have got the better deal there.
Certainly that doesn't mean every large acquisition is justified (e.g. Bebo) but it also means you can't just automatically apply the "company X has no clear business model today and so shouldn't have been bought for Y" argument to every such acquisition either.
I'm not convinced Yahoo buying Facebook for $1 billion would have been a good deal for Yahoo. Yahoo never would have been able to make Facebook nearly as successful as it is today. I have my doubts Facebook would be worth even a $1 billion today. Yahoo has an awful track record of making the worst out of their acquisitions and I don't see how this would have been any different.
I am actually wondering if the value was too low. They are crossing the chasm so to speak and moving toward mainstream very quickly. I don't know where they would have ended up, but if they could have negotiated an upround with the founders and VCs taking some cash off the table it may have been a better move.
I fully understand that if I had a $1B offer for a company that I would literally be sick turning them down, but the potential was there for something really big. If I could keep going with $10m in the bank, I would like to think I would try.
I grant that $1B sounds a lot for Instagram and it is harder to see similar commercial value in photos than in videos.
My personal take is that in addition to friend connections, already posted photos could be the strongest lock-in for users that Facebook has against future competitors.