You're in your bank manager's office. You need some cash to buy a business. It has 13 staff and no revenue. Nor does it look like it has any means of generating any money. What's a fair price? Your bank manager might suggest that a pound could be in the right ball park. But, if you're Mark Zuckerberg, then $500 million would be the answer. Yes, Facebook has just spent half a billion dollars to acquire Instagram, the popular but not profit-making photography app. We have to presume that some of that money is paying to buy the 30 million or so registered users who have uploaded more than a billion images to Instagram so far – and continue to upload more than five million more every day.
That at least would be one reason for the enormous difference between Facebook's $500m bet on Instagram and the $35m Yahoo! paid for similar-ish photography site Flickr back in 2005. Another reason would be that there is still a giant bubble in the internet business. And yet another would be that Facebook is awash with cash and desperate to keep growing.
It's all part of a battle between Google and Facebook to be the default browser on your desktop. Each is trying to add greater and greater social functionality in an attempt to make itself a stickier place to be. And if they can't develop these places themselves, they're going to have to buy them, which makes this one heck of a seller's market.
Facebook now has Pinterest and Instagram. Google has Gmail, a monster search engine and some extensions that haven't really caught on. What will Google's next move be?