Does Facebook/Instagram Spell Bubble?

Wired, Wednesday, April 11, 2012 11:14 AM
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It’s Day 2 of the Facebook-buying-Instagram-for-a-freaking-$1 billion news cycle, and much of the focus has shifted toward the deal’s implications for the Web, and, in particular, the existence of another tech bubble. To put the acquisition in perspective, Wired’s Andy Baio gathered data from a selection of 30 notable online acquisitions over the past 10 years to see if, in his words, Facebook buying Instagram for $1 billion is “as crazy as everyone thinks.”

“If we look strictly at the acquisition cost per user, Facebook got a relative deal with the Instagram purchase, paying roughly $28 for each of Instagram’s 35 million users,” Baio concludes. “The median cost across all the acquisitions is about $92 per user.” By contrast, for failed question-and-answer site Aardvark, Google paid a whopping $555 per use, by Baio’s calculation. Even more absurd was Yahoo’s infamous $5.7 billion purchase of Mark Cuban’s Broadcast.com in 1999, which translated to about $11,000 per month active user.

The fact that Facebook has agreed to drop $1 billion on a 2-year-old startup with only 13 employees has many people crying “bubble!” Not Baio, however. “I think it’s more likely it just reflects the incredible scalability of modern app architectures,” he reasons.

 


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