One day, you’re happily using a free app without a care in the world. The next day, you hear that the app has been bought out, and the whole world is panicking. All your friends are posting that they’re glad they didn’t use that app, or how they’re switching to another app and wish they’d switched sooner. And you’re wishing everything could just go back to normal.
But the internet’s a fast-paced place, and stuff changes faster than we’d ever expect. So what’s one to do in a world where apps become popular overnight, get bought out for billions, shut down on a whim, and lost to history in less time than a movie can get produced?
A couple of months back, Facebook shook the world with their billion dollar Instagram acquisition, days before going public. As if that didn’t cause enough furore, Facebook’s stocks tanked soon after going public, inviting sharp criticisms from all ends. It sounds too much like the .com bubble of the late ’90′s, the last time the early world of web apps messed up our economy.
Some people even started predicting doom and the end of the world as we know it. Okay, I made that up. But I can’t quite make peace with the fact that Instagram, a company which had only been around for a year and a half now, and made zero profit, is worth a billion dollars.
Outrageous, one might say! But knowing Zuckerberg’s working style and Facebook’s history, I believe there must be some reason behind this seemingly irrational move. In this article, we’ll try to understand how product valuation works, what is an economic bubble, and more importantly, why Instagram.