Thursday, April 12, 2012
Instagram was bought by Facebook for 1 Billion dollars. A 2 year old company with 12 employees. What is it that Facebook was buying? Users? Market? Technology? Whatever the reason, it cost about $37 dollars a user.
That number seems both a lot and a little at the same time to me.
It is a lot of money per user when Facebook is buying 27 million of them at the same time, especially when many of them are already Facebook users, so the cost per unique or new user may be much higher than the $37 dollar number.
It is a little amount when you look at a customer by customer basis. Would you pay $37 dollars to gain a new client? Most companies’ acquisition cost for a new lead or prospect are much higher than this. Do you know or track your cost to acquire new customers? You really should, but you knew that.
Facebook thinks it can sell more in advertising than the $37 dollars per user. I would say that is a fair bet. In addition, it isn’t like those billion dollars was generating a lot of interest sitting in the bank with this economy. It is an investment. A land grab advertising investment.
Am I shocked a 2 year old company can be worth a billion dollars? Absolutely. Do I think this is the end of the big deals? Absolutely not. But I do understand that the way to make money in this industry has changed and a everyone who wants to stay out front needs to understand this.