Tuesday, 1 May 2012

Are we looking at another bubble soon to burst!



You must be hiding under a stone if you haven’t heard Facebook’s latest and most elaborate spend to date. Facebook has decided to spend a whopping $1 billion on an app that makes no money! Instagram has 33 million users implying that Facebook paid $30 per user.

This extravagant spend was on the app ‘Instagram’. The app is made with the intention of allowing you to share your life ‘as instant and magical’ as the first Polaroid pictures had been when they came about.  Now don’t get me wrong it’s a brilliant idea but the only difference is the options to make your pictures more retro and there are 11 other options to change the picture one takes.

Facebook uploads an average 250 million pictures a day. Facebook’s main feature is photo sharing so of course they will be able to utilise the Instagram app but $1 billion is just too much money. . Instagram seems to have been bought so that other social networking sites won’t gain access any revenue that could be made. I would be of the belief that Facebook was trying to ensure that Twitter would not buy the app.
I can’t help but think back to when Google purchased YouTube for $1.65 billion. Or when eBay purchased Skype for an estimated price of approximately $3.1 billion and two years later was sold to Microsoft for $8.5 billion. This was Microsoft’s largest sever acquisition at the time (May 2011).
These elaborate spends by these very profitable companies have to bring to all our minds when the dot com bubble burst. If you are not familiar with the dot-com bubble it was basically an increase in the value from the growth in the internet sector. The bubble burst and only 50% of dot-com's survived.

So the acquisitions of YouTube by Google, Skype by Microsoft and now Instagram by Facebook has us all wondering is there another bubble on the horizon similar to that of the dot-com bubble.

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