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.