Whatever value Instagram has for Facebook, it probably has at least double that value for Google, who could buy it just as easily. By paying a premium and showing major interest first, Facebook preempted an opportunity for Google to get some traction in the social space. Very smart move.

The purchase price is usually determined based on the latest round of financing.

That would mean that if a malevolent owner decided to change T&C and sell all your private data youd have a legal recourse with which to stop them.

Personally I think that Opera's browser based server offers a way forward whereby a user would have all their data local and a FB like service would operate as a hub/link - like how bt services are pointers to distributed data.

Maybe someday soon Google's strategy of letting a thousand Android devices bloom will pay off. But that is still a "maybe". Apple has tens of billions of "definitely's" to counter that maybe.

Meanwhile: I think people are getting hung up on this whole Apple vs. Google point, and getting away from my real point, which is that:

(i) Google's bids for a stake in mobile have been hugely expensive and not particularly profitable,

(ii) Apple's bids for a stake in mobile have been hugely expensive and hugely profitable, and

(iii) Facebook's bids for a stake in mobile have been expensive but orders of magnitude cheaper than Google's or Apples, and could end up hugely profitable in the long term.

Facebook will end up looking pretty smart if that's what happens. They didn't even have to buy a cell phone manufacturer or write their own OS!

I'm not saying Apple have only scored the safety, or that Google have dominated, just that we're no-where near the end of the game and given Google's game plan is a long one we can't say that it's worse, not right now - we can only predict that we think it is.

I wasn't giving a stock tip. Just stating what I see as the most obvious conclusion.

That being said, if I had a net worth of any significant value that wasn't illiquid, I would probably buy FB stock on IPO and hold it for a few years. I can't see why you wouldn't want to.

They have not really monetized, they have 800M+ users and they are already doing $1B/profit per year. Imagine when they really figure out how to make money.

I think you think this is some kind of Jets/Eagles thing here, and I'm wearing the green jersey. No. I don't have a side, and I don't think the competitive battle happening here is rational; I just acknowledge that it is happening.

In turn, Facebook, implicitly assumes that the greater fool from whom they will make money from this deal is the public who will buy shares when Facebook goes IPO. Because with $1 billion in profits for 2011, if the market values them at $100 billion, that will be a P/E ratio of 100. Even if they double their profit in 2012, their P/E ratio will still be 50, which is astronomical.

When people put huge money into things that have low value from a business fundamentals point of view, just because they think they can sell later on to someone else to make a huge profit, I think that's the very definition of a bubble.

This is no different than the real estate cycle in L.A. or South Florida a few years ago, when people would buy and sell condos based on market potential multiple times before the condo was even finished. It all works until someone down the line tries to cash in. It will work for FaceBook and Goldman Sachs, but a whole lot of consumer investors are going to get AOL'd in the long run.

And to go further: I have a Flickr account, I have some Picasa galleries.. I rarely visit those sites except to upload a batch and then go elsewhere.

I use Instagram 5-10 times daily when in transit, on lunch, while watching TV, etc...

Damn reading comprehension. ;)

To go a step further, consider: Flickr is available on every device (computer or phone) with an internet connection . Instagram was iOS-exclusive until a week or two ago, and yet it managed to reach sixty percent of Flickr's user base size. That's astounding.

--does Android's Camera app have social sharing features?

--does it provide some kind of cloud-based sharing support?

I see the above, plus Instagram's 30M+ user base, as their main benefits.

You don't expect Instagram to double its user base within a year? Maybe even more?

But more importantly than that, I think it was one of a very few that were good in that fund. I believe that particular fund was particularly bad because it contained remnants of the dot com bust - so only 1 - 3 of their investments in that fund were profitable, and only 1 was enough to pay for the entire fund.

I am not remembering EXACTLY so my numbers may be a bit off...but you can just imagine how annoying it must have been to be a partner in a fund and be telling your LPs that you have essentially lost all their money - and thinking about this for the entire 10 year life of that fund.

Just for at the last minute, almost literally, all of that changes.

People don't think about it, but it's not easy to be a VC.

a) You don't know if the acquisition will actually happen. Therefore if it doesn't, you aren't left with nothing.

b) It gives you a stronger bargaining chip to increase the price of the acquisition because you literally have a strong alternative. Instagram could tell FB to screw off, they are already getting $50M.

It's basically a bargaining chip. Let's look at two different scenarios:

1. Your last round of financing was two years ago and you raised $2M at a post-money valuation of $8M. Two years pass and you're hot, what is you company worth? Look at some comparables (which the acquirer will try and rip apart). Do a multiple of your revenue (which the acquirer will try and rip apart).

2. Now you're hot and you think you might be acquired (or maybe not!), you raise $5M at a $50M post-money valuation. Now when you sit down at the bargaining table, you can say "Well that VC over there thinks we're worth $50M, what do you think we're worth?"

In option 2, you've got a lot more bargaining power.

Unless those economics have changed, but I don't think they have.

It is in that light why I say, it seems a bit precarious. Essentially what would have happened is, these VCs would have contacted their limited partners and said, we have an investment we want to make - send us the money now (this is after the limited partners already committed to giving them that money). The LPs then wire the VC fund the money. The VCs then wire that money to Instagram.

3 months later, Instagram wires the money (assuming it was all cash, which we know it wasn't) back to those investors, which then have to wire the money back to their LPs. So technically, it doesn't REALLY help their portfolio as much as if they got a 10X return in a few years because the money was put to work for a shorter period of time.

Although, if you are 'annualizing' the return properly and assuming a 33% return each month, then the yearly return is actually 29X (compounded), but we digress.

Anyways, there's a excellent blog post that explains this very clearly. It is written for founders to understand the VC's perspective when investing. Does anyone know what I"m talking about?

That's the point, this isn't what happened. Given the choice between 2x return in 2 months or 10x return in 120 months, there's no contest at all. That initial investment that returned 2x is now out of play for the life of the fund. If the fund's life is 10 years, the return is 1.1x, not 2x.

Anyway, it's better than 2X, so I guess they can't be pissed.

Anybody who has taken a finance course knows the simple principle that a dollar today is worth more than a dollar tomorrow. It is NEVER better to make a return of equal percentage later in a fund than early. Instead of having $50 million to invest in the original fund in the same companies as before, you now have $100 million to invest in the same companies as before. The fallacy in your logic is that you are hung up on the required return for that single fund.

The only way what you are saying is valid is if by investing that $50 million in Instagram, they missed out on the opportunity to invest in another company that at some point in the future would have returned more. In a window of about two months, I highly doubt that's the case. Again, once you have doubled your money and gotten it back, you can invest it anywhere you like, including the same companies you may have before. But now you have twice as much money. There is nothing magical about that fund that makes its investments more special than another.

If I invest $100 into 10 different stocks, and I figure that nine of the ten are going to be losses, then I hope that one of the ten will return me at least $1000, or 10x my original investment. That's very different than saying that any of the ten that returns me less than 10x is a disappointment. On the contrary, if one happens to return me 10x over the lifetime of my portfolio and another returns me 2x, then I am even better off than I anticipated.

Video has a higher value proposition than photos. Look @ how hard flickr has struggled turning photos into a sustainable business model.

I'm comparing apples to apples. You're comparing apples to oranges.

I fully understand that if I had a $1B offer for a company that I would literally be sick turning them down, but the potential was there for something really big. If I could keep going with $10m in the bank, I would like to think I would try.