In Defense of Facebook's Instagram Purchase
NEW YORK (TheStreet) -- Here's the easy part: lament that Facebook paid too much for Instagram. It isn't hard to do.
Developed for Apple's(AAPL) iPhone to doctor and share photographs and now running on Google's(GOOG) Android system, Instagram is only two-years old, has about a dozen employees, produces precisely zero revenues (which puts it in the profit category of -- don't ask) but sold for $1 billion.
The basic facts easily call to mind the most indulgent deals of the Internet bubble -- and perhaps for good reason. For historical context, just about all media outlets mentioned their favorite bad deal of that late 1990's period.
The Wall Street Journal, however, is one of the few to point out another historic possibility: the Instagram deal, they wrote, "harkens back to Google's $1.6 billion acquisition of video-sharing site YouTube in 2006. At the time, analysts questioned the hefty price tag. But the deal instantly made Google a leader in Internet video and allowed it to expand its advertising to new formats."
Moreover, too much of the media either outright ignored solid justifications for the deal (CNNMoney.com) or merely mentioned one in passing, dispatching their duty then hurrying on to the laments.
That's how The Washington Post rolled, touching briefly on the concept that Facebook might need to stem damage to their mobile platform, before chronicling a myriad of negatives, from Facebook's ownership of photos to their history of raiding firms for talent, leaving nothing but a husk.
Among other reasons for the deal, Reuters, by contrast, did well to point out that Facebook can deploy Instagram's photo technology to good effect and probably had to act to keep Instagram out of Google's hands.
Look: Facebook probably overpaid. But every deal has a chance. The media more frequently assumes success of mergers, but this time they went into automatic dismissal mode and that's not right either.