Yeah, I really got the feeling that SV had finally jumped the shark when Instagram got sold for $1 billion. How can a service with users, but no clear revenue stream, be valued so highly? It seems like people have gotten too caught up in navel (and traffic stats) gazing to see what's really important when running a business.
It wasn't worth $1bn on the general market, but it was worth 1% of Facebook's equity (which at the time was worth $100bn)
Photos are Facebook's biggest feature by far, and Instagram is the only company that has come close to challenging it, when you look at it in those terms, 1% isn't a lot at all
> And what kind of revenue does that feature bring in exactly? How exactly does Facebook profit from providing free photo hosting to a billion people?
The "goal" of facebook is for you to share and connected with your friends. Photos are just one of the things everyone wants to share. Without it, Facebook would have a giant hole for a competitor to attack.
Facebook profits by having the most active and connected users. It's not necessary to make money from each feature. That's extremely short sighted.
> It's not necessary to make money from each feature.
Which is correct. Google provides search functionality, but makes its money from advertising.
But what feature exactly is Facebook making money off of? They seem to still be scrambling to find a revenue source. I don't understand how this situation is at all acceptable from the investors' viewpoint. That is why I say that SV has jumped the shark.
Exactly. This is the poster child for "acquihires" in that it was a defensive move to get Instagram user mind share encapsulated into face books properties and an offensive move to prevent any competitors from acquiring the user base's attention.
While it may not have "inherent" value, it certainly has value. The attention of a user base can be extremely valuable if effective advertising is used. The majority of Google's revenue comes from advertising, and no one would claim they are not a viable business. Facebook is now making a non-trivial amount of money from advertising as well.
> The majority of Google's revenue comes from advertising, and no one would claim they are not a viable business.
Google is the exception. Or rather, search is the exception. You can make money off of search advertising because people are explicitly looking for things when they perform a web search. So if you show people good ads, they will click on them.
But how many people are going to click on ads when they're trying to connect with their friends on Facebook? Facebook's entire premise with respect to advertising is that they have more information about the user, so they can target ads better. But it doesn't matter how targeted an ad is if the user isn't interested on clicking on it when it's presented.
> Facebook is now making a non-trivial amount of money from advertising as well.
There's a big difference between "non-trivial" and "enough to turn a profit".
> I don't agree at all. If the users attention had no value, then you would not see 800 million users on facebook.
I don't see how the value of the users' attention determines whether or not they are on the service. If you put out free food on the street, people will come and eat it, and you will have their attention. Doesn't mean you can turn a profit doing that.
> Google+ and FB are in direct competition for the attention of the same users.
Yes, they are, but I have yet to see "user attention" be properly monetized on a large by anything other than search engine advertising. Facebook is still trying to find solid revenue sources. Their new gifts platform is the latest example of this.
People forget how well connected Systrom and Instagram were/are. Systrom worked at early Twitter, worked at Google, close with people at Facebook, and seeded by Andreessen ($75mil off a $250K investment). At the end of the day, it's about people. The speed of the transaction helped too.
