Acquisition value != societal value.
Instagram wasn't worth $1 billion to society, it was worth $1 billion to Facebook, which works out to $30/user. Facebook can reliably turn users into gold, therefore it was a reasonable purchase for them.
It's analagous to someone saying, "Academic researchers should be paid more because of what they're progressing mankind". But they're typically not paid more than those working in a for-profit organization who is also doing research.
Instagram was worth that sum to Facebook, just as Lucasarts is worth that sum to Disney. Neither are worth that much for society, though Lucasarts happen to contribute more to society over it's 40 years of existence.
That's the part you need to justify, since that's the only part that has anything to do with a supposed bubble.
Facebook said it themselves, it's less about '$1bn' and more about '1%'.
Besides, usually when people are flinging around that ill-defined loaded term, they're comparing something like a farmer to a social media platform, where one provides obvious concrete value and the other is providing value much higher up the Maslow hierarchy. But here we're talking about two entertainment companies, one built on two-way communication and one built on the older one-way consumption model, that peculiarly 20th-century aberration. Is it really so obvious that the valuations are that wrong? I'm totally unconvinced it is so obvious that it goes without saying.
Web app for taking and sharing pictures taken with your digital camera over ADSL broadband to brag/talk to your friends about.
2 years of existence
1 product
24 employees
30M+ users
$0 revenue
What exactly is your point? Instagram had insane adoption and was eroding Facebook's control over both pictures and mobile - the two biggest drivers of future growth over the next decade in both users and ad dollars.
Facebook bought them with overvalued stock (before IPO) so it was ~$500 million which is the same as what the VCs valued it at a month before it was acquired.
It was a good acquisition - basically a hedge against market obsolescence, easy injection of new IP and easy injection of mobile users.
Excite could've bought Google for ~$1 million back in the late 90s. Yahoo! could've had Facebook for ~$1 billion if the pressure on Zuckerberg was higher.
They choose not to buy that option. They don't exist anymore.
edit: i think you may be referring to instagram. it just confused me because you titled your post with FACEBOOK in all caps. =)
Take US Air for example, they have 30k employees and are worth 2B. That ratio is meaningles. It is even more meaningless when one programmer can eliminate 100s of jobs using automation.
I'm sure it is a useful metric for some analysis, but it doesn't seem to be in the case of instagram which seemed much more like a play to remove a question mark from institutional investors minds prior to an IPO.
IMO, Facebook would not have paid less for 15 employees or more for 100 employees so it seems like a poor metric.
A) using Instagram?
B) watching a Lucasarts film?
Edit: The point is value isn't always generated from a price tag. User timeshare has it's own value for advertising companies.
How many people this year will pay to see or use something that Lucasarts made?
Just because it doesn't have a price tag doesn't mean it can't generate revenue, silly.
PS: I did know about Instagram hitting 100 million users… I actually chose to put the number of users at the time of acquisition, as whoever had bought them was bound to increase their user numbers exponentially (if nothing else, for the sheer publicity such an acquisition provides).
Sometimes I compare laptops to milling machines, its fun since a used milling machine that can make a new crankshaft for a 77 GTO goes for less than a high end Macbook Retina. Money enables different things (making crankshafts for example) comparing the enablers is fun but not really something to get bent out of shape about.
Instagram was actually valuable to people at least, compared to the startups getting funding in the 90s. The funding of Color on the other hand was a bit reminiscent of those days though.
Lucasfilm is in a very crowded space. They have a ton of expenses which results in loses a good percentage of the time. Their best days were probably behind them (especially since they chose to stop making new Star Wars movies).
Basically, this is comparing two completely different businesses in completely different markets. I think both were good deals for the acquirers.
I'll leave with this: I think selling Band Aids is a better business than Yahoo - but you're crazy if you think Yahoo doesn't have an insane higher multiple of potential.
$7 billion gross over the course of 41 years with 1,001-5,000 employees (http://www.linkedin.com/company/lucasfilm).
Instagram:
$0 over 2 years with 13 employees.
That $7 billion could easily turn out to be negative profit with that number of employees. Looking at the movies Lucasfilms puts out, 90% of their profits comes from Star Wars and Indiana Jones. Its going to be very hard for them to continue sequels to these movies. Then you look at the growth of the market.
I understand Instagram doesn't have profits... but I'm still not convinced
The only reason Instagram sold for $1B was because Facebook was willing to pay that price (especially in stock).
To be accurate, final purchase price for Instagram was $710 million.
