Killing threat is priceless

By Stephen Foley

Instagram doesn't have any profits. It doesn't have any revenues. It doesn't have a business plan to generate any money in the near future, either, so there's no point discussing if it's "worth" US$1 billion. It can't possibly be, at the same time as it most definitely is.

Zuckerberg decided it was worth paying Instagram's founders US$1 billion in Facebook stock and cash, in case he was staring at the thing that would relegate his career to an online historical curiosity.

Facebook doesn't have to make a US$1 billion-plus return on Instagram. It's enough that Instagram can't now go on to build a rival social network around smartphones where Facebook is weak.

Only YouTube rivals Instagram for the speed at which it grew and the eye-dropping, jaw-popping price tag at which it sold. Google knew its Google Video project was failing; it was as terrified as Zuckerberg that a rival was sprouting that would soon wreck its dominance of internet advertising.

These hyper-defensive acquisitions are rare, particularly by companies still in their growth phase, like Facebook. But there are scores of small deals every month, where talent-hungry giants like Google buy a developer's not-that-hot start-up as part of the process of hiring him.


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