Gavin O'Malley, Apr 10, 2012, 10:12 AM
Press Questions Facebook's Instagram Buy Reuters

Though largely seen as a mobile play, Web watchers are seriously questioning the rationale behind Facebook’s decision to drop $1 billion on Instagram.  “The price [is] stunning for an apps-maker without any significant revenue, even with soaring startup valuations in Silicon Valley,” writes Reuters.

“It’s a notable move for Facebook, which has exclusively focused on bite-size acquisitions, worth less than $100 million,” notes The New York Times’ DealBook blog. 

“A few days ago [Instagram] was rumored to be valued at $500 million,” GigaOm’s Om Malik recalls. So, why pay twice the current valuation for a 2-year-old company? “Facebook was scared shitless and knew that for first time in its life, it arguably had a competitor that could not only eat its lunch, but also destroy its future prospects,” suggests Malik. “Why? Because Facebook is essentially about photos, and Instagram had found and attacked Facebook’s achilles heel -- mobile photo sharing.” 

“To be blunt, Instagram is simply a much, much better way to share photos than Facebook's horribly broken mobile app,” declares Business Insider. No wonder why Facebook probably saw it as a threat and decided to buy it today for a mind-boggling $1 billion in cash and stock.” 

Along with taking out a potential threat, meanwhile, “Facebook is fighting Google and Apple for mobile users,” Fortune reminds us. “With Instagram, it gains a core of developers that have the mobile design chops Facebook has lacked.”

“Certainly, the deal makes a certain amount of sense if Facebook is becoming an unregulated monopoly like your local electricity company,” The Guardian writes. “To the extent that Facebook is succeeding in its bid to become an alternative Web, where it controls the ecosystem rather than existing as part of the wider open Web, it can afford to spend any amount of money to buy what amounts to a feature.” 

According to parislemon blogger MG Siegler: “I’m looking at it and thinking that Facebook is ingenious. They’re one of the few large companies that understands how to and when to acquire. You don’t buy at the peak. You buy on the ramp up to the peak. Instagram as it stands right now is awesome. It’s the tip of the iceberg for what they want to do.” 

The big question, however, is how well Facebook can execute on the acquisition. Mostly by promising not to shut down Instagram, “Mark Zuckerberg is saying all the right things,” Siegler notes.

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  • Gavin O'Malley, Apr 10, 2012, 11:51 AM
  • Industry Tackles Smartphone Security USA Today Giving consumers another reason to embrace smartphones, the industry is working with the government to make the technology safer and more secure. The cellular industry just announced a new nationwide database aimed at preventing the use of stolen smartphones, to be strengthened by a bill proposed by Sen. Charles Schumer, D-N.Y., making it illegal to circumvent the database. The joint initiative comes amid a steep rise in the theft of smartphones and cellphones, which made up 30% to 40% of all robberies in major U.S. cities last year, reports USA Today, citing police estimates. "It is a big crime trend, and that is what the police chiefs brought to our attention," said Federal Communications Commission chairman Julius Genachowski. “Cellphone service providers pledge to cooperate on a database, fully operational within 18 months, that will prevent stolen smartphones from being used on other networks in the U.S. or globally,” USA Today reports. According to Genachowski, the move will have a significant impact on criminal activity. "The police chiefs are convinced that that will significantly reduce the value of the phone and reduce the black market economics to steal a phone," he said. Meanwhile, carriers are also expected to encourage customers to use passwords that lock their phones and the data they hold.  
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  • Best Buy CEO Felled By Web Rivals Reuters As gadget retailers live by technology, they die by it, too. Falling into the latter category, Brian Dunn, CEO of struggling Best Buy Co., announced his resignation on Tuesday. “Under Dunn's tenure, which lasted less than three years, critics have complained that Best Buy became a showroom for Amazon.com and other Internet retailers, with consumers going to Best Buy stores to sample electronics like high-definition televisions, but then buying them elsewhere at lower prices,” Reuters explains.  As a result, the world's largest consumer electronics chain has seriously struggled against stepped-up competition from Web retailers and discounters. In fact, the company has fallen short of sales expectations for several quarters in a row, as Reuter notes. “Despite offering bigger discounts and free shipping to lure shoppers, same-store sales fell 2.4 percent in the latest quarter, including a 2.2 percent decline at U.S. stores open at least 14 months.” As such, Michael Pachter, an analyst at Wedbush Securities, tells Reuters: "I hate to be rude, but I think he (Dunn) was doing a terrible job. This is a company that had a sales guy in charge, and I just don't think they are well positioned to deal with the onslaught from the Internet."  
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  • Yahoo Details Latest Reorg Bloomberg Yahoo CEO Scott Thompson on Tuesday outlined the company’s latest restructuring, which is a desperate effort to reverse sales declines, and step up the pace of product innovation. “Yahoo, after saying last week that it will eliminate 2,000 jobs, is reorganizing businesses around three areas: consumers, geographic regions and technology,” Bloomberg reports, citing an internal memo from Thompson. “The consumer division will focus on media, commerce and so-called connections, which include Web search and e-mail,” according to the memo. Ross Levinsohn, currently EVP in charge of the Americas, will head the media group, which will include the home page, sports, news, entertainment and other media properties, Sunnyvale, Yahoo said. Shashi Seth, who currently runs Yahoo’s Web search products, will oversee connections, which will include search as well as email, the Flickr photo-sharing service, Yahoo’s question-and- answer feature, and other communications and social tools Bloomberg reports.  The head of Yahoo’s commerce business, which is comprised of jobs, autos and personal ads, is yet to be named. “Over the last 60 days, we’ve fundamentally rethought every part of our business,” Thompson said last week in a letter to employees.   Read the whole story...