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BLOG: Instagram: Bubble, Bubble, High Tech Trouble?

John P. Mello Jr. | April 16, 2012
Facebook's purchase last week of Instagram, maker of a mobile photo-sharing app, for a staggering $1 billion dropped a lot of jaws everywhere, particularly among high tech pundits.

Some commentators suggest that the Instagram deal may be the pin that will prick what they see as an existing high tech bubble. But Dan Gillmor, writing for The Guardian, contends that the sale may further inflate the bubble with the help of Congress.

"The main reason is the recently passed Jobs Act that...is ostensibly designed to fuel entrepreneurship in America but which is at least as likely to promote corporate fraud," he writes. "Silicon Valley loves the law, but the scam artists of the world are surely salivating, too. When a flood of sleaze adds to a rising tide, all boats float higher -- for a time."

In order to have a bubble, companies need to be purchased at inflated prices. That isn't the case with the Instagram deal, tech guru Om Malik maintains, because it was crucial -- at least in Facebook's view -- to the company's future prospects, which includes a possible $100 billion Initial Public Offering later this year.

"Facebook was scared shitless and knew that for first time in its life it arguably had a competitor that could not only eat its lunch, but also destroy its future prospects," he writes. "Why? Because Facebook is essentially about photos, and Instagram had found and attacked Facebook's Achilles heel -- mobile photo sharing."

Bubble or no, a proliferation of billion dollar deals is unlikely, according to Gartner analyst Ray Valdes, who recently told The Telegraph: "The downturn and the last dot-com bubble will have a sobering effect. There are still some deep scars that have left lasting memories."

 

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