It’s not everyday that the tech industry sees two of its giants fork over $1 billion, especially for things that (at least at this point) have so little impact on the everyday technology consumer.
But such is life in the wild world of tech where an aging company like AOL can sell a patent portfolio to Microsoft and an emerging upstart like Instagram can double its valuation almost overnight (without any real business model behind it).
Acquisitions are exciting, the tech industry’s equivalent of the Super Bowl. That’s especially the case when the deals hit the magic number of $1 billion, sending the tech blogosphere into an uncontrollable tizzy.
But the craziness of the day — highlighted by the disparate nature of the two deals — shouldn’t necessarily be greeted with cheers.
In the case of Microsoft’s patent buy, it’s unclear exactly what the software giant intends to do with the intellectual property.
But the competitive bidding process and high price tag once again raises concerns about the litigious nature — the ugly underbelly if you will — of the industry. Using patents as defensive or offensive weapons may help employ a few extra lawyers and drive some revenue (as it does in Microsoft’s Android-related licensing deals), but it’s unlikely to spur the type of innovation that technology companies once prided themselves on.
As GeekWire reader Christopher Budd commented today:
“I’m all in favor of intellectual property, but I admit I’m distressed at how tech seems to be turning away, generally, from innovation and competition and towards acquisition and litigation,” Budd wrote.
Nicely said.
Facebook’s $1 billion purchase of Instagram, meanwhile raises an entirely different set of issues. Sure, some people love the photo sharing service. And with roughly 30 million iPhone users, it is an emerging force with GigaOm’s Om Malik suggesting that the company may have even sold too early.
But the wild fluctuation in valuation, mushrooming from a reported $500 million last week to $1 billion today is simply insane. And while it may be good for Instagram’s venture backers and its 13 employees, it’s hard to really get your head around the economics of the deal. In the course of human history, has a 13 person company ever been worth $1 billion?
Or, as another GeekWire reader, noted:
“On what strange planet is Instagram worth $1 billion? Good to see that nothing was learned from the dotcom fiasco and paying too much for today’s flavor of the week is alive and well.”
What do you think? Are these the best of times or the worst of times, the age of wisdom or the age foolishness for the tech industry?
FOLLOW-UP: The battle to train a market: Instagram is what Facebook has been telling you guys to do for like a year, okay?
