The news of social networking giant
Facebook buying photo sharing network Instagram created ripples in the online world. A two-year-old start-up going for a hefty price of $1 billion didn't go down well with people across the board - investors, bloggers, programmers, analysts and of course, tweeters who were stunned with the ultra-high valuation on which Instagram was bought.
The valuation of any online company is essentially based on the revenues it generates from advertising, getting people to pay for its services or selling merchandise. But in the case of Instagram, none of this exists, which means the company doesn't make any money.
FULL COVERAGE: Facebook's run to the IPO When Instagram took $7 million in Series A or first round venture funding from Benchmark Capital (and others) in February last year, its new board member Matt Cohler told the members of the team to focus on growth first and think about the revenue model later.
That's fairly common practice for many Silicon Valley firms.
Popular microblogging website Twitter, for instance, could not figure out the 'right' revenue model for the first few years of its existence. Although it is estimated that Twitter has posted revenues of $140 million in 2011, up from $45 million in 2010, analysts believe it is early days for its ad revenue.
Interestingly, a couple of days before the Facebook buyout, Instagram reportedly closed a $50 million Series B round of funding led by
Sequoia Capital at a $500 million valuation. The reason
Facebook has agreed to pay double the amount within a week's time shows its desperation to take on rivals such as
Google ,
Twitter and
Yahoo.
While Facebook is already the most-popular photo sharing site on the web (some 250 million images are uploaded daily), it has been historically slow to innovate in the fast-growing mobile arena.
Instagram, on the other hand, has become instantly popular in the important consumer space with over 30 million iOS users and over one million signups on Android.
The dotcom frenzy is visible
back home in India as well. Two early age start-ups - ItsMyMeal and eSportsBuy.com - were able to clinch handsome deals in the last week.
SPECIAL: India's innovative start-ups The Bangalore-based ItsMyMeal, an online outsourced kitchen firm founded in 2011, has raised $10 million from a group of angel investors. eSportsBuy.com, which sells sports goods, was snapped up by group buying portal Snapdeal within a year of setting up for an estimated price of Rs 50 crore.
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