I read Revealed: How Twitter’s secret offer for Instagram made Facebook pay $1B over at VentureBeat the other day.
Apparently Instagram was a paranoid-based purchase by Mark Zuckerberg.
I wrote a comment which garnered “
7 Likes 13 likes,”
“If the buy decision was based on paranoia, and Facebook was that worried that Twitter acquiring Instagram was enough to topple Facebook - then how in the hell can anyone justify a $100+ billion valuation of Facebook?”
A robot dinosaur friend of mine also made a comment in the thread,
@FAKEGRIMLOCK, “BEST WAY CASH OUT? MAKE ACCIDENTAL BILLIONAIRE FOUNDER TERRIFIED ENOUGH TO BUY YOU. #INSTAGRAM”
Regardless of my understanding and belief that Facebook has a limited runway of relevancy left, based on the de-centralization of the internet (see The Independent Web, How Can It Work?), this makes me really believe they’ve never had anyone at the steering wheel who really knows what’s going on; The Social Network movie, based on a true story, does suggest the initial ideas that were the basis of Facebook’s success were in fact stolen.
Facebook, Mark Zuckerberg (assuming he’s not just a pawn), made a bad decision IMHO. A $1 billion bad decision.
When you have access to ~$5 billion and don’t actually know what to do with it, you’ll likely make mistakes, especially if you’re rushed.
If you don’t know what to do with the money it’s because you don’t know where you’re headed, where your market is headed / evolving to. And it’s a pretty strong signal you don’t know what you’re doing by dropping $1 billion on something like Instagram.
Technically, it’s $300 million of cash they spent. Many of the investors in Instagram are also investors in Facebook - which is a bit fishy (see Instagram-scam?), so it makes me think the following: That it’s not completely a bad decision, not for the current stock owners anyway - unless they’re up to no good and get caught.
The purchase could be being used to psychologically sway people into believing that if Instagram is actually worth $1 billion, and which then could lend credibility to Facebook being worth $100 billion - so when IPO time comes, the general public have a false sense of valuation based on this and other subtle psychological tricks.
Update: I saw and responded to a fellow AVC’er David Semeria over at Chris Dixon’s blog, where he made a comment in Chris’s post entitled Is it a tech bubble? His comment and subsequent conversation prompted me to publish this blog post of mine.