The truth about Instagram.
There wasn't a building high enough for me to jump off of when I first heard about Facebook acquiring Instagram for a billion dollars two weeks ago. I know that sounds extreme, but I'm honest enough to admit that I could not see straight for a couple of days post-deal announcement. It was nothing against Instagram (I love the app), it was the purchase price that made me all weak in the knees. While everyone is still wondering how the valuation of a twelve-person employee business, that hasn't been around for three years and has no revenue could go for that kind of whopping amount, many conspiracy theorists think that it's more of a Facebook play to prove to the market that if Instagram is worth a billion dollars, than Facebook must be worth (at least) one hundred billion dollars. Between us friends, just writing out sentences like that makes me feel like I'm typing a script for the next Austin Powers movie, instead of what I'm really trying to do: write a legitimate business blog post. Some may call it a bubble, others may claim that it's a gross over-evaluation... either way, we're now evaluating startups using the "b" word and that changes everything. Again.
If it happened to Instagram, the next logical business questions are...
- Who will be the next startup to get that kind of deal going?
- Will it be for more money?
Believe it or not, there is a laundry list of great, new companies who had very interesting valuations prior to the Instagram acquisition, but now they're looking prettier than ever. Companies like Rovio (makers of the highly addictive Angry Birds video game), Foursquare (the location-based mobile social network), Spotify (the socially-driven music streaming service) and even Airbnb (instead of staying at a hotel, you can pay to crash at someone's pad) could be next. While I like each and every one them (for different reasons)...
Here are four other hot startups that are more than capable of cracking an Instagram-esque sale price:
- Square. While Square has over one hundred employees and is already valued at over one billion dollars, I've been smitten with this business since it was first announced. The company was co-founded by Jack Dorsey (known as one of the creators of Twitter) as a simple way for anyone to accept an electronic payment through their mobile phone, by either swiping a card through the Square card reader (which clicks into the headphone jack of an iPhone) or by manually entering the information through an app. I love their vision statement: no more cash registers. The company makes money by charging 2.75% on every credit card transaction. You could see how financial institutions, credit card companies or any company dealing in monetary transactions might find Square to be a valuable asset.
- Pinterest. Out of nowhere, this social photo sharing site that allows users to "pin" visual content that is appealing to them, create their own "boards" to display those pins and share them, has quickly become the third largest online social network (beating out LinkedIn) and an online darling. Once the Instagram sale was confirmed, many figured that Pinterest would be next. The company, which just celebrated its one-year anniversary, was founded by Ben Silbermann and, according to Wikipedia, the site is managed by Cold Brew Labs and funded by a small group of entrepreneurs and inventors. If Twitter or Google are still steaming over not getting Instagram, Pinterest may be their golden goose.
- Fab. Originally launched as the Facebook for the gay and lesbian community, CEO Jason Goldberg and Chief Creative Officer Bradford Shellhammer soon realized that Facebook is the Facebook for the gay and lesbian community, so they turned their eyes to social commerce. Fab is an e-commerce company that creates flash sales (usually only lasting a few days) of very modern and contemporary design items (everything from artwork and t-shirts to furniture and accessories). The company has received over fifty million dollars in funding from people like The Washington Post, Ashton Kutcher, Guy Oseary (Madonna's manager) and some of the valley's more impressive venture capitalists.
- Path. Path's founder, Dave Morin, allegedly turned down a one hundred million dollar offer from Google before his mobile social network started getting the attention and users it is currently enjoying. Better known as, "what Facebook should be," Path is a mobile-only online social network for your true friends and family. The app actually limits the amount of people you can share your online journaling with to one hundred and fifty friends. Path's focus is on helping people build close, tight-knit social networks to deliver true value. Think of it as the social media version of "quality over quantity." With about a dozen employees, it's obvious how some of the more web-based businesses (Facebook, Google, AOL, etc...) would be enticed to acquire this company that understands how to help people connect through their smartphones.
While many of these companies have raised enough money to put their valuations in the billion dollar-plus range, it's going to be an interesting few years as the general economy claws its way back to a sense of normalcy (hopefully), while these new, brash and unique digital business models unfold before our eyes. Who could have ever imagined a business landscape where a company of less than twenty-people, an Internet connection and a handful of MacBook Pros could have these types of engaged customers and these types of wild valuations?
Which new startups do you think have the billion dollar magic touch?
The above post is my twice-monthly column for the Montreal Gazette and Vancouver Sun newspapers called, New Business - Six Pixels of Separation. I cross-post it here with all the links and tags for your reading pleasure, but you can check out the original versions online here:
- Montreal Gazette - After Instagram, which startup will be Internet's next billion-dollar baby?
- Vancouver Sun - Facebook's pricey purchase of startup brings 'B' word back to fore.