The recent purchase of Instagram by Facebook for $1 billion caught my attention. This company is only a couple of years old. About as close to an overnight success as you'll ever see.
For those of you who don't know what Instagram is, it is an app that allows photos to be shared. Here are some of mine. Ironically, the company raised money at a valuation of $500 million the week prior to the Facebook deal. It is easy to scoff at these valuations and declare that app valuations are in a bubble as the tweet below does.
Instagram is great. But $1B?? Just one over-priced social media company buying another. Monopoly money.
In October of 2010, Instagram had 100,000 users. Today the service has over 50,000,000 users and is growing at 5,000,000 per week. These numbers are hard to put into meaningful context so I've put a few benchmarks in for comparison.
- Dancing With the Stars = 15 Million viewers
- Superbowl = 111 Million viewers
- Facebook = 800 Million users
A 30 second Super Bowl add sells for $4 million. The average NFL broadcast lasts 174 minutes with an hour of that devoted to commercials. The Super Bowl has at least 120 30 second spots. That's almost $500 million in one day. Advertisers prefer "users" over "viewers" because they get all that juicy Facebook data which helps them target their ads better.
Its not as easy as it sounds even in the fast moving virtual world:
Achieving overnight success: Kevin Systrom
The myth of the overnight success
The bottom line is that social media is a pretty big deal and growing very quickly.
Success Takes a Very Long Time
Some of you will know who George Mitchell is. He's the reason that North America has the cheapest natural gas in the world. In 1981, he started trying to produce natural gas from the Barnett Shale in Texas. By 1999 they had a pretty good handle on it and went about selling the company. It was a long process but Mitchell Energy & Development Corp. was eventually sold to Devon Energy in 2001 for $3.5 billion.
Clearly there is a big difference in timing when comparing software to the commodities business. Famed consulting firm McKinsey & Company studied the time-to-market values for fifteen oil and gas technologies. They determined that the average proof-of-concept to widespread sales time was 16 years. George Mitchell took 20.
Time is money.
I would be remiss if I didn't remind readers about my blog sponsor, Shoal Point Energy (SHP - CNSX). On Monday they announced a resource estimate from AJM Deloitte.
