Facebook, Instagram, Ben Bernanke: Thank You For the New Tech Bubble 124
pigrabbitbear writes "Those who continue to inflate the tech bubble will be quick to remind us all of how they've learned from the past. That this time, it's simply different. They do have a point. Silicon Valley (and Alley) have matured. Startups these days are focused, driven, and efficient, creating products that people actually use. In a period of less than a year after its launch, Instagram was used by 5 million users, who by August of 2011 had uploaded 150 million photos. But even with these impressive results, it's impossible to ignore the fact that many of the fundamental economic factors that led the first bubble remain."
A couple other readers contributed similar articles — Instagram's sale seems to have solidified the idea for many that we're in the midst of another tech bubble, though some are more certain about it than others.
focused and driven (Score:4, Insightful)
yeah, they're focused on money and driven by greed.
Re: (Score:3)
Well, actually, that wouldn't have been a problem. I mean if they were focused on revenue. But since default business model these days is to try to get acquired by big guys... yeah, it is a problem
Re: (Score:2)
Especially in this case when the 'big guys' are the pension funds with executives going for off shore tax haven purchasing commissions. So actually targeting the little guys, don't worry if your missing out, the scheme is coming for your social security cheque real soon. Maybe that's what they're waiting for when it comes to the Facebook IPO, the big 'Social Security Rip Off', when the US social security funds get privatised and dumped in all the worst investments imaginable, Goldman Sachs style.
Facebook promotes fake relationships. (Score:3)
Sooner or later, people will realize that Facebook promotes fake relationships. Unfortunately, that realization will apparently come after investors have lost billions in Facebook's IPO.
Facebook's reputation with the mainstream media is rapidly getting worse. Facebook is getting a bad reputation partly because of articles in the mainstream media like these:
Re: (Score:3)
Yeah, but we have to consider a few things here. The apps are driven by the App Stores themselves Apple / Google alone has the power to influence the decision of the users. TBH I had no clue what an "Instagram" is or was (and from what I can gather its merely a unit measurement of stupidity) but until FB purchased it and it made headlines only 30 million people were the wiser.
App Stores brand awareness is built by the concept of someone owning a device and thinking "I want an app that does ...." and then "O
Revenues? (Score:5, Insightful)
So it sold for a billion dollars.
It must have had some serious revenue to make it worth that much.
It didn't?
Then we've learned nothing from the last bubble.
Re:Revenues? (Score:4, Insightful)
Easier and cheaper ways to do that. (Score:5, Insightful)
Or you dump 1/10th of that money ($100 million) into creating your own app that does the exact same thing and is tied to Facebook.
And you've saved $900 million. Which can be used for other projects or acquisitions.
If we have, I don't see it.
The dotcom bubble was all about the IPO or selling to someone bigger and becoming an instant multi-millionaire.
We have the huge IPO's again and now we're seeing the massive purchase prices of systems without viable revenue streams.
Re: (Score:2, Interesting)
Or you dump 1/10th of that money ($100 million) into creating your own app that does the exact same thing and is tied to Facebook.
And instantly its compared to Instagram and if its head and shoulders above Instagram then everybody would be screaming "why didn't they just buy Instagram".
Also another angle is that it keeps it away from google and google+, avoiding a battle between Facebook's photo-sharing capabilities and Google+ + Instagram and there shiny, shiny marketing campaign to lure photocentric people away from g+.
Re: (Score:2)
And instantly its compared to Instagram and if its head and shoulders above Instagram then everybody would be screaming "why didn't they just buy Instagram".
Well the answer in that case would've been pretty straightforward: it was damn expensive.
Re: (Score:2)
Re: (Score:3)
Re: (Score:1)
But that's essentially what Instagram did.
It sold 10% of the company to some other investor for $50M, a price that gave the company an implicit valuation of $500M.
At that instant, anyone who wanted to buy out the remaining 90% has to pony up about a billion. And everyone who owns shares (i.e., the original VCs that funded it) has at least some liquidity in a secondary market - maybe you're an
Re:Easier and cheaper ways to do that. (Score:5, Insightful)
Or you dump 1/10th of that money ($100 million) into creating your own app that does the exact same thing and is tied to Facebook.
They eliminated a competitor and (more or less) bought their user-base
The actual code isn't worth nearly as much.
Maybe. (Score:2)
Maybe. Although I'd expect that most of Instagram's userbase is already part of Facebook's userbase. So they'd be paying a billion dollars for access to people that they already had access to.
Which is the point. If they can get that for a billion dollars, can they get the same for less?
Can they get BETTER for less?
And by "for less" I'm talking about a hundred million dollars. Which is why I think that this is part of the new "bubble" and
Re: (Score:2)
Remember Google Video? I'm sure it was as good or better than Youtube, and most of YT user base overlapped with Google's user base, but Google ended up buying Youtube and shutting google video down.
Re: (Score:2)
Re: (Score:2)
But that's the point, plenty of people used Google stuff, so they developed Google Video. Then nobody used it and they were forced to buy out YouTube with its existing userbase.
In other words, :: Facebook : Instagram knockoff
Google : Google Video
Re: (Score:2)
Or you dump 1/10th of that money ($100 million) into creating your own app that does the exact same thing and is tied to Facebook.
And the 30,000,000 people using Instagram will immediately go, "Gosh! I'll just dump that ol' Instagram and use this instead!"
Like Instagram is the only one out there doing this. There are bunches of these. Somehow, they haven't managed to be as successful as Instagram by doing the exact same thing Instagram does.
Don't get me wrong--paying $1 Billion for Instagram is ridiculous, IMHO. But saying, "They could have done it themselves cheaper" isn't really the case either.
Re: (Score:1)
Or you dump 1/10th of that money ($100 million) into creating your own app that does the exact same thing and is tied to Facebook.
And you've saved $900 million. Which can be used for other projects or acquisitions.
How many people have tried this strategy and succeeded. "Oh, Nimblesoft has made this awesome app, let's throw in a chunk of money at the problem, put in some really smart guys, and see if we can get something as successful". I don't even need to quote some product examples that were the brainchild of this noble, yet ill-informed idea. Facebook not so much purchased Instagram as they purchased the brand identity and its ecosystem. That imo takes way more to develop than just $100 million. So, saying that t
Re: (Score:1)
yep but it is facebook, if anyone with it's 800 million users could create a product and get people using it surely it's facebook, who's brand recognition dwarfs instagrams. Now they are tied into a brand that only a small minority has heard off (30 million), when they surely could make better capital out of the better known FB brand
Re: (Score:2)
Re: (Score:2)
Or you dump 1/10th of that money ($100 million) into creating your own app that does the exact same thing and is tied to Facebook.
Which would be much less effective - don't forget that they snapped up all of Instagram's users along with the app itself.
Re: (Score:2)
Or you dump 1/10th of that money ($100 million) into creating your own app that does the exact same thing and is tied to Facebook.
Because this approach has worked out so well for Google's G+.
Re: (Score:2)
However, i do believe there is another tech bubble.
Re: (Score:2)
Nope.
It's a stupid copy/paste effect, the kind any 12 year old could have written with 8 lines of PHP code and a few generic templates.
Why aren't they buying memegenerator.net for a billion dollars then ? Their tech is arguably superior since they can render UPPERCASE ARIAL FONT TEXT!
Pretty much anything with Facebook and "money" in the same sentence is guaranteed to be nonsensical.
We != Mark Zuckerberg (Score:3)
He single-handedly did the Instagram deal without outside involvement. He was 14 years old when the last bubble crashed, and he probably didn't learn a whole lot from it.
Then again, with Facebook now worth upwards of $100B, he can afford to overpay for companies by 10x and get away with it.
Re:We != Mark Zuckerberg (Score:4, Funny)
Re: (Score:1)
not really if i offer you my 10 year trainers, that have holes in them and smell a bit cheesy, for $200 dollars, but you haggle me down to $150 dollars, who made the good deal.
Re: (Score:2)
Anyway, who knows what the thinking here was. I've heard speculation that instagram had a good chance of unseating facebook. Sounds ridiculous, but I said the same thing about facebook
Re: (Score:1)
"People were throwing money at anything dot com until it was ridiculously overvalued, and then they lost that money"
That's what happened, but why didi it happen? Companies were buying smaller companies for millions of dollars when there was little or no relative ROI. Companies didn't respect the dollar, and when you run out of them, you're done. That's the concern of a new bubble.
Where do you get a $1bil ROI out of Instagram? I don't use it, so I don't know. If they sold ~$30 of advertising to every Instrag
Re:Revenues? (Score:5, Insightful)
Not necessarily revenue, but *potential* revenue, talent, or IP, and a customer base that wasn't already part of facebook.
He may also be seeing something that with the right investment will be worth hundreds of millions in revenue.
On talent: Deals like this usually stipulate that the leadership of the company being bought (in this case I'd guess that's most of the 13 employees) have to stick around for while or they lose shares or the like. He might be figuring they have a vision that can translate into users, or facetime on facebook, which would translate into revenue. He's also valued at probably 20 billion dollars so figuring someone else should be worth a hundred million wouldn't seem out of place.
IP. IP seems unlikely, but Instagram may own, or be able to acquire intellectual property rights on what they're doing, and that could put facebook in a bad position if it's dealing with them by duplicating their service.
Instagram customers may not be facebook customers. When you have 800 million users it's pretty hard to see where you're going to get many more from. There are only 7 billion people on the planet, half are too old or too young to be on facebook, another large blob are too poor, or illiterate or both to have internet access and facebook. Leaving, on a good day, ~2 billion potential facebook users. And some of them really don't like facebook (including half the /. crowd) so they won't be customers no matter what. He may be figuring that for a billion dollars he can increase his 'user' base from 800 - 850 or 900 million, which would increase facebooks value by 5-10 billion dollars.
In terms of future revenue he may be seeing something the rest of us aren't thinking about too much. Ads are probably worth more the more time you're on a page. Instagram may attract more facetime for existing users, as in they'll be online longer, and therefore can get more ads spewed at them, additionally getting them in the facebook team early would be preferable to having to buy them out later when they may be worth 2 billion dollars. He may know what we don't, which is how much an extra minute of time on facebook is worth, and how many minutes people are spending on instagram
Facebook is probably also paying largely with facebook stock. That means the valuation is a paper one, not a real one. You work for facebook, you get facebook stock, and if facebook tanks they aren't on the hook for anything particularly cash wise.
And he might just figure with the right investment there's could be a product worth selling.
Of course he could be completely wrong on any or all of those counts. But this is a good time for potential future shareholders to see just how much power "Zuck" really has at facebook, and whether or not they want to be involved with that.
Re: (Score:2)
Facebook wasn't buying revenue. Instagram represented 30m users engaged in social networking which would be a terrific way to get Google+ off the ground. Facebook bought to maintain their monopoly. They are going to make some money but honestly it wouldn't have changed the deal much if they had to buy Instagram and burn the business to the ground the next day.
Where it the tech in the Tech Bubble? (Score:2)
Internet companies like Facebook or Instagram are still classified as technology companies for historical reasons, but technology is not driving them.
These companies are creating consumer services and the main deciding factor for their success is marketing and consumer behaviour. Innovations they do are just as technology oriented as new Nike shoes or Gillette razors. Technology is just in the background just like (chemical) technology is in the background of new shampoo or conditioner.
Back to the bubb
Products (Score:5, Insightful)
"Startups these days are focused, driven, and efficient, creating products that people actually use."
Creating products that people use is easy. Creating products that people will pay to use is the hard part.
Re: (Score:2, Insightful)
I would argue that it isn't. People pay to use facebook, and they pay quite a bit ------> Privacy. That is the new currency.
While it is terrifying, I find it fascinating that we're actively having our old currency replaced by an entirely new one.
Eh? (Score:1)
We're not replacing anything. What's happening now is simply is business as usual - or do you think corporations and the government haven't been trading analytical data on people/customers/et cetera since forever?
Even the, "Hurr, it's free!" Google/Facebook/etc. crap isn't new. Grocery store discount cards, anyone?
Re: (Score:2)
People aren't paying with their privacy. People are paying in dollars. People buy stuff advertised on facebook and their partner sites. The privacy angle is mostly about them targeting ads, or creating a large enough userbase (people who want to look at your photos) that they can advertise to.
Re: (Score:3, Insightful)
Creating products that people will pay to use is the hard part.
Instragram wasn't created for the monkeys shooting pictures at each other. It was created for the advertisers that pay for monkey's eyeballs. They do indeed pay.
Re: (Score:3, Interesting)
Creating products that people use is easy.
I'm not so sure that's exactly true. It's easy to throw up a web site, a bit harder, but still possible to push up its visibility. Getting people to use it? Not sure sure anything short of voodoo makes that happen. I still don't really get twitter. Seems like voodoo to me.
Fundamentals? (Score:1)
Re: (Score:1)
I was interested by this and believe I found the relevant film spliced into sections and with extra commentary: Monetary Economics and Ducks [youtube.com]
Neat little episode.
How much money has your grandmother invested? (Score:1)
Oh right, this isn't the same thing. If Facebook spends a billion dollars on a company, and it flops, then FB goes under... not your 401k.
Social networks != software industry (Score:3)
Most software is more mundane and niche than the fly-by-night social network phenomena. Software underlies the processes that operate the world. This is far bigger than a few companies/services.
Re: (Score:2)
Hey gramps, ten years into a phenomena it is safe to assume they are not going to fly away in the night.
Tags (Score:1)
Can't tag - mod this up.
Re: (Score:1)
Slashdot fail - can't reply to parent
Regarding bubbles.... (stock related) (Score:2, Interesting)
I bought 14 stocks during the dot com boom and I sold everyone of them 90 days after I bought them.
It was a very profitable year.
The bubble now that everyone should be paying attention to is gold. It's at a ridiculous valuation, it's unsustainable and when you hear companies marketing to the general public that they should switch from greenbacks to dollars, you know you should steer clear.
I am loading up right now on a gold short (ticker: DZZ). It's a position that, once gold's price collapses, should roc
Re: (Score:3)
1980.
Simple Explanation for Instagram (Score:5, Interesting)
For anyone who's still scratching their head about the instagram purchase, here's something to think about.
At least one of Instagram's employees, Philip McAllister, was at Gowalla when it was picked up by Facebook less than 6 months ago.
That guy might be the luckiest bastard in the world, having worked for 2 tiny companies whose only significant accomplishment was getting acquired by Facebook. On the other hand, Zuckerberg could just be funneling company money to friends?
Re:Simple Explanation for Instagram (Score:4, Informative)
Zuckerberg could just be funneling company money to friends?
+Adam D'Angelo
It was just a Mark Zuckerberg whim (Score:1)
Pretty much it was a rich kid saying, "oh yeah twitter, 1 Billion dollars, how do you like that?!?"
I don't think this bubble is the same. Recent IPOs (Groupon, Zynga, etc) have pretty much calmed down (although they may still be somewhat too high, it isn't as crazy as the last time). Google just make 2.9 Billion, so their valuation is pretty rea
How many of the 5 million users are spambots? (Score:5, Interesting)
I'm always perplexed why the quality of the number of users is never challenged.
How do you know a ton weren't generated as apart of some marketing strategy?
Or rather, how can you NOT suspect that a significant portion of them aren't fake?
Has the issue of verifying online registration as belonging to an actual, unique person been solved with absolute certainty while I wasn't paying attention?
- tgg
Double Bubble Trouble (Score:2)
As long as this particular bubble ONLY hurts the greedy and the stupid, bring it on!
Re: (Score:1)
Nasty bubbles happened long before interest rate management and they continued to happen after. Thus, the field evidence that rate management is harmful or that it enhances bubbles is subtle or missing. At best you could make the argument that since it is not a clear fix, it should be done away with.
Re: (Score:2)
Think of rate manageme
Re: (Score:1)
If people don't invest, then the econ goes stagnant. If the interest rates were higher in the early 2000's, then the Dot Com bubble recession would have lasted longer. That's not good either
Perhaps rate management just makes the cycle of bubbles more predictable rather than gets rid of them. The "fix" for the first bubble perhaps seeded the next.
Re: (Score:2)
Crucial difference from Bubbles Past... (Score:4, Interesting)
We'll see about that... (Score:2, Interesting)
2015. You, me, and a hat.
Re: (Score:2)
Netscape. (Score:3, Interesting)
For a while there, everybody used the Netscape browser and the Netscape portal page was the first thing everyone saw. That is, until Microsoft got around to making a better browser and the Apache server ate Netscape server's lunch. I believe Mark Zuckerberg was around 10 years old at the time.
Remember when they were trying to guilt their users into upgrading to Netscape Gold for like $30-40? Hilarious!
Re: (Score:2)
Nobody was laughing though when Microsoft was prosecuted for violating the Sherman Antitrust Law of 1890. They may have squashed Netscape, but it cost them dearly.
Re: (Score:2)
Re: (Score:2)
Remember when they were trying to guilt their users into upgrading to Netscape Gold for like $30-40? Hilarious!
But this site looks best in Netscape Navigator Gold!
Re: (Score:2)
So there IS a browser in which Slashdot looks decent?
startup idea: eFail....or iFail (Score:2)
For a startup idea, make a website that makes it easy to bet against companies one feels will kiss the shark fairly soon. Reverse investing. eTrade in reverse.
I know there are already ways to make bets against companies using stock "puts" etc., but they are tricky for the average Joe because they are designed for institutional and expert investors. Make it easy and safe for consumers, and I'll be an early customer.
You hear that, Microsoft and Facebook?
Not particularly different... (Score:4, Insightful)
Startups these days are focused, driven, and efficient, creating products that people actually use.
Having users with no business plan to monetize that popularity isn't particularly different than having no users at all... I think the same held true in the late 90s, there was the interest and the users, but a lack of sold plans to translate that into something economically feasible.
Re: (Score:2)
Uh... I call bullshit on this.
The USA is the world's largest manufacturing nation. We make more stuff than anyone else. China may eventually pass the US, however that's because it has 4x the population. In addition the US share of world manufacturing capability has been relatively constant for decades.
http://business.time.com/2011/03/10/can-china-compete-with-american-manufacturing/ [time.com]
In addition there is starting to be evidence that it's gaining on competitors like China. Labor and energy costs there are ris
Big deal. (Score:5, Insightful)
...creating products that people actually use.
So? People using your product isn't the point of business. Making a profit off of people using your product is the point. That's why we had the dot-com bubble: nobody could make any money off of this new-fangled internet thingy.
Re: (Score:2)
Well, I wouldn't say nobody [amazon.com], but the SNR was very low at the time.
Re: (Score:2)
Re: (Score:2)
I think Google would probably be even bigger. IIRC, Google was quite big in search for quite a while before they discovered they were an advertising company.
Replacement for advertising-based startups (Score:4, Insightful)
Any startup where advertising is the stated (or likely will become) the source of revenue, could be replaced. With what? With something like networks (in the old sense, as in TV networks) where "producers" create "shows" that run on the network. In other words, "Facebook, brought to you on NBC Internet by Sudso. Sudso. The soap that cleans your mind".
The current process of angels, VCs, etc makes a lot of money for some people. OTOH, it seems rather inefficient compared to the old network model. If Groupon were a gameshow, it would make money for the network, give away some prizes, and eventually get cancelled when people lose interest. Ditto for myspace. The whole process of taking these shows through early rounds all the way to IPO is just way too cumbersome.
As an added bonus, the "shows" might have a greater incentive to support things such as porting your data to the next "show", whereas in our current realm they have an interest in making their site "sticky".
I don't think privacy would be any better or any worse.
This model faces an uphill battle in terms of recruitment, I think. Producers expect the IPO pot of gold at the end of the rainbow. A studio job won't lure the big talent as easily.
I could be waaaay off the mark of course. Just idle speculation on a Friday afternoon...
Maybe... (Score:2)
There are some pockets of excess certainly. However that's true in any stock market that isn't actually in crash mode. Look at Chipolte for example - the valuation there is beyond reason.
However it isn't a full fledged bubble until the excesses have the Mom and Pop investors chasing the market. That isn't happening.
Wrong bubble (Score:2)
Not this crap again (Score:1)
There was an enormous hype predicting the fall of web2.0 in 2008, yet it was one of the few sectors that managed to grow in the crisis. Stop publishing these fake stories by sour speculants.
2 reasons bubbles happen (Score:1, Redundant)
2. People do what people around them do
source - http://edge.org/conversation/infinite-stupidity-edge-conversation-with-mark-pagel [edge.org]
Wow! Instagram (Score:2)
We live in a fraud driven, violently unstable.. (Score:4, Insightful)
We live in a fraud driven, violently unstable economy, a massive Ponzi scheme masquerading as an economic model!
It doesn't work, it can't work!
It WILL destroy itself.
it's the economy, stupid (Score:2)
if the economy didn't suck so hard, maybe we'd be hard at work and not logging so many hours into facebook and twitter
Re: (Score:2)
If you didn't waste so much time on facebook and twitter, maybe the economy wouldn't suck so hard.
another minute (Score:2)
Now send more money!
What? (Score:3)
Right...
It's a Facebook Stock price scam (Score:2, Interesting)
Look, Facebook is not buying Instagram with only cash, it's a cash/stock swap deal and likely mostly stock. Basically Instagram is swapping its worthless/worth little paper for Facebook paper which is equally worthless ($60 billion my ass).
If Instagram thought it was going to be mega then it wouldn't be swapping its own stock for Facebooks because it wouldn't benefit from that. Instead the deal is like this:
Facebook to Instagram: we buy you for some ridiculous sum. We pay you in shares, and you pretend that
"This time it's different" (Score:2)
Honesty, look down through history, from the gold-rushes, through the 1920's, 1980's, dotcom, sub-prime, and you will see that same phrase come up again and again. Bubbles only pay off for those who know it is a bubble and who hype it - they are a long form legalised ponzi-scheme - and they only make money if the majority of people believe it isn't a bubb
one region of bubble (Score:2)
bubbling up (Score:2)
Is there another tech bubble? That's been obvious in San Francisco for the last year. Apartment rents are way up (and there have been times when availability was near zero), and there are meetup groups like the "Nightowls" that are clearly packed with venture capital pimps and 'hos. Notably, this time around there's plenty of office space available, because unlike bubble 1.0 tech start-ups don't bother with it, instead they try to work in cafes like Ritual Roasters and the like.
So, there are all these
Re: (Score:2)
That's probably true more-or-less, but I talked to one Y-Combinator dude who struck me as a crazy huckster-- he reacted badly to take on Paul Graham, and started saying things that sounded nutty about perfecting "data-driven investment" or something like that (I don't really know what he meant... maybe "zipcode too far south? No 10K for you!").
(If you care: my take on Paul Graham is he got rich at his s
Re: (Score:3)
Facebook produces gaping customers that are ready for the plucking by advertisers. It is really one of the few commodities that can be produced in the US today. It doesn't pollute, it isn't involved in any sort of racial profiling and it doesn't require raw materials from either a strip mine or China.