There’s an interesting thread to two stories of the past couple of weeks that highlights a schism between two cultures in the tech world.
The big story is Instagram being acquired by Facebook for one billion dollars, less than 18 months after its launch and with just 13 employees. It amassed over 30 million users whilst iOS-exclusive, and gained over a million Android users within 12 hours of its launch.
Instagram achieved cult status incredibly quickly, and the Facebook acquisition has not been popular with its early-adopter user base.
Five days before the Facebook deal, Instagram’s CEO Kevin Systrom gave an interview about the company’s business model:
“27 million people is not too shabby, but it’s nowhere near the scale you need to make a massively large business”
“We want to create a ‘stage’ – build a platform where advertisers can come and perform their advertisements”
Alarm bells: Just another VC-inflated entity with an audience but no real market.
Andy Baio argues that there is “No Bubble to See Here”, because the Instagram valuation expressed as Cost Per User is far below similar deals in the past.
Granted, but I think once we’re at the point of justifying any billion dollar purchase with the hypothetical future value of tens of millions of users that have never previously generated a penny, we’re already firmly into bubble territory.
In Dubai they value an area of desert based on what you could build on it – four luxury hotels, three golf courses, a theme park – then they take out a mortgage for that hypothetical value. But it’s still just desert, as most now realise.
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The previous week, John Gruber caused controversy by labelling the Readability team as “scumbags” in reaction to its (now previous) policy of directing traffic to its own servers, effectively stealing pageviews from the original author, whilst simultaneously collecting money in the name of publishers and keeping anything unclaimed.
This post led to some heated discussion between Gruber and Anil Dash and Jeffrey Zeldman (the latter two being Readability board members, advisors, and stockholders) claiming that Gruber is biased towards Instapaper developed and financed solely by Marco Arment, a friend of his.
And therein lies the key difference in outlook and culture.
Perhaps there is such a fundamental difference in outlook between those individuals who describe themselves as entrepreneurs or investors, and those companies that have boards, advisors, and stockholders, distributing free products to build an audience for its potential value versus those individuals for whom developing and selling their own product is the endgame.
Those two cultures seem to be continually diverging: a backlash against “free” alongside high profile, high priced industry jokes like Color.
Instagram’s fate is somewhat disappointing from an idealistic point of view. Why can’t a great service become a viable, self-sufficient, sensible business as opposed to the technology equivalent of obscure financial derivatives and futures?
