Instagram Acquisition Brings Bad .com Flashbacks

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You probably thought my Instagram post would be about the evils of Facebook, but instead I wrote a post with Jennifer Leggio on Forbes about how to survive a tech bubble. No matter what impact the Instagram deal has on my personal social media (and even on the fledgling network), what is becoming clear is a return to dangerous financial valuations for venture-backed tech start-ups.

Paying $1 billion dollars for a 12-person company with zero in-bound revenue makes absolutely no sense. Even worse, the acquirer Facebook is a company that expects a $100 billion IPO on $1 billion a year of net revenue. It’s clear we are in the midst of another tech bubble. That’s why Jenn and I wrote our somewhat cheeky survival guide.

During the .com era, I was in the middle of the boom as a mid-level manager. I remember getting laid off with the rest of the marketing staff at IPNet Solutions in 1999 (I served as media relations manager), just three weeks before our shares vested. The catch? It was done on my cell phone in two minutes flat while I was on vacation. Nice. Four years later, IPNet was acquired for an undisclosed amount (e.g. a mercy kill).

Then as a PR exec at TMP Worldwide (now Monster Worldwide) back here in the DC area, I helped an optical telecom company build a $1 billion IPO. They were also acquired in 2003 for stock after bleeding red ink, going through waves of layoffs, and realizing the culmination of its two contracts.

Finally, when the dot com bubble crashed, I watched waves of my peers get laid off, as the agency’s telecom and tech start-up business dissipated. It was heart breaking watching them go month after month, not knowing if this time would be my turn, too. I survived that rough patch.

So, you can see I have experienced these wild tech start-up valuations personally. What goes up without reason will surely come down. Many of us are still in tech start-ups. Some of them are very good companies. But it never hurts to be ready for worst case scenarios like a social media bubble bursting.

What did you think of the Instagram acquisition?

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  • http://dr1665.com/ Brian Driggs

    I think the Instagram purchase is indicative of a society grower ever more deficient at real innovation. Why invest in better products or services or (dare I say it) making a legitimate difference in customers’ lives when you can just M&A your way to the top. If nothing else, you can further insulate yourself from real competition, if your lobbyists’ efforts in Washington don’t fully give you a competitive advantage.

    Borrowed money.
    Borrowed time.

    “Serial entrepreneurs” flipping over-valued startups are no different from greedy real estate speculators. I’d like to see us recover from one bubble before the next pops.

    • http://twitter.com/geoffliving Geoff Livingston

       Well, it is a common approach to innovation for big companies. I also see it as a sign that big companies are going to die. And Facebook has a tendency to not do well with acquisitions, a la Friendfeed and Moby. We’ll see on this one.

  • http://janetfouts.com Janet Fouts

    I remember the wild ride of the 90′s when we launched our own dot.com. and I’m seeing it all over again. Table tennis in the lobby, beer bashes every Friday, huge valuations. How did we not learn from that?
     Oh. This time it’s different.
    Not.

    • http://twitter.com/geoffliving Geoff Livingston

       LOL! Common, you love fooz ball, Janet!

  • http://twitter.com/macmullet Jake

    It’s insanity.  What was that $1 Billion price based on?  No revenue.  12 employees.  Millions of users, but just posting pictures of sunsets and cats.  WTF, Facebook?

    • http://twitter.com/geoffliving Geoff Livingston

      Not much business sense there. Hope they turn the trick, but I doubt it.

  • Leo Dimilo

    Personally, I think the instagram inquisition was done as a defensive move by Facebook.  They were threatening Facebook’s target market and one of the few reasons why people get onto Facebook in the first place (to look at pictures of their friends).

    And given the fact that we are moving to a place where mobile (which facebook sucks at) is becoming more important than desktop checks, it only makes sense that Facebook would value a company that is growing so fast.

    • http://twitter.com/geoffliving Geoff Livingston

      And Facebook mobile is SO bad.  I can see this on several levels being a win-win. Except in actual value.

  • http://twitter.com/haeffele8 Megan Haeffele

    While I do enjoy the occasional picture of the sunset or a cat, (Jake), I agree with Leo about Facebook’s move being defensive. I love Instagram and have little care for Facebook these days.  

    That said, I also found $1 billion to 12 employees on the edge of insanity.  But you know what that price did pay for?  A LOT of publicity. It shows what Facebook can afford, and it introduced Instagram to a lot of people who had known little about it prior to the Facebook purchase.

    And also, I really wish Instagram hadn’t sold out :(

    • http://twitter.com/geoffliving Geoff Livingston

       I so agree with this on a lot of levels. But for $1 billion they could have bought Weber Shandwick!

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