Instagram a company with no revenues and barely any staff gets acquired for a billion dollars: it has to be a bubble, doesn’t it?

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So has gone the reaction of many to the news that Facebook is buying the mobile photo-sharing service Instagram, which has 30 million users uploading 5m photos a day, and just a week ago sold a 10% stake for $50m of venture capital funding from Sequoia Capital and Greylock Partners.

If this is a tech bubble then it is the third in the internet’s history.But there are two factors at play, both of which make this bubble different from the previous ones. The first is the role that smartphones play. The previous two bubbles were built around sites and products that ran on desktop computers: the Netscape browser, AOL‘s monthly charge for a dialup internet connection, Yahoo’s dominance as a destination for people checking news and email.

The second element is the rising importance of the “social” element of our use of computers and products. Facebook rules the social world right now; but that might be a tenuous hold, and Mark Zuckerberg knows it. The risk for Facebook is that it was born on the desktop, but to take advantage of the coming world it has to shift over to mobile; it barely makes any money from mobile, despite having huge numbers of people who only access it that way. Pulling in Instagram is a way for Facebook to pull itself into the social future that’s developing around us. It’s quite likely that it hasn’t gained a single extra user; but they’ll all be more tightly tied to the biggest network. As Zuckerberg put it on his own page, writing about the purchase: “This is an important milestone for Facebook because it’s the first time we’ve ever acquired a product and company with so many users. We don’t plan on doing many more of these, if any at all.”

Source guardian.co.uk

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