OMG! Ur rch! Stup fcebok gve u $1b!!!
That probably wasn't a text message that Instagram founder Kevin Systrom got on his smartphone the other day, but if I had his number I would have sent it. Good for the 28-year-old CEO, but what does it say about the tech economy in general -- and Facebook in particular -- that a startup with exactly zero revenue and no particular business plan can be sold for a cool $1 billion?
Then, of course, how could Facebook, with revenue of $3 billion last year, be valued at around $100 billion as it prepares to go public later this year?
If these events don't indicate the rise of a dangerous tech bubble, nothing does. If investors eventually take a beating by making such outrageous bets, who cares? But the last time we saw this pattern, the entire tech economy blew up along with the dot-coms, and thousands of people in IT (and elsewhere) lost their jobs. It's going to happen again.
"The most telling indicator [of a bubble] is the $1 billion-dollar valuation," Gartner's vice president Ray Valdes told the Guardian. "Two- and three-person Silicon Valley startups [are] getting venture capital funding within days or weeks, rather than months, for stuff that is more of a feature than an actual product."
That's not a good sign.
Who needs innovation when you have the market's funny money?
Sure, I know Facebook can easily afford to buy Instagram. But you have to ask yourself why such a successful company was freaked out by a startup with 13 employees.
I find it impossible to believe that Facebook couldn't find a way to bolster its photo-sharing capabilities to match Instagram's. Of course it could. But when you have lot of cash hanging around, why bother to innovate? Or to compete with a feisty startup? Better to remove the competition and be sure that Google doesn't buy it.
The tech economy shows signs of moving away from the notion that real value is created by innovation. The Instagram deal is much like Google's $12.5 billion takeover of Motorola Mobility for its patent portfolio, a sign that big tech companies are more interested in playing financial and legal games than staying productive.
Instagram is fun, and by all accounts its founders are really good engineers. I don't begrudge them their success. But think about what Instagram does: taking a picture of your dog, coloring him blue, and posting it somewhere so that all your friends who have nothing better to do can see it instantly.
Maybe I'm old fashioned, but there's something sick about that being worth $1 billion. Suppose that much capital were invested in solar power to keep us competitive with China or a startup that might invent a battery to power an electric vehicle for 500 miles between charges -- I can dream, can't I?
Beyond the lunacy: The triumph of mobile
There is, however, another side to this, and it's the primacy of mobile computing. It used to be that developers would start with a Web application and later on figure out how to take it mobile. But now the opposite is starting to happen: mobile first, and desktop later, if at all.
We have immensely popular companies like Rovio and Foursquare with millions of users and no ties to the desktop. It's no accident that roughly 10 percent of the money venture capitalists are putting into tech went to mobile startups in the last quarter of 2011, according to CB Insights.
Consider Apple, now the world's most valuable company. It didn't get richer than Exxon, not to mention Microsoft, by selling a zillion MacBooks. Its fortunes turned when Steve Jobs and company cranked out a succession of mobile products starting with the iPod, followed by the iPhone and the iPad. The vast majority of that explosive creative energy came from within, not via acquisitions -- certainly not by paying $1 billion here and there for simplistic startups.
This article, "Facebook's Instagram buy: The new dot-com bubble," was originally published by InfoWorld.com. Read more of Bill Snyder's Tech's Bottom Line blog and follow the latest technology business developments at InfoWorld.com. For the latest business technology news, follow InfoWorld.com on Twitter.