Facebook's decision to pay $1 billion for Instagram, a 13 person photo sharing startup with no revenue, is a bit of a shock.
While many people have congratulated Facebook for smartly taking out a budding rival, few have looked at the other side of what that means.
Facebook, with 800 million users, was freaked out by a tiny startup. It's always good to be paranoid, but when a giant company, one that's valued at $100 billion, is suddenly scrambling to protect its core business, it has to be worrisome.
A similar thing just happened with Zynga. It was getting clobbered in its core business of social gaming by a startup out of nowhere. So, it was forced to shell out.
Over the weekend, a friend was arguing Facebook is much more vulnerable than most people realize. As soon as the Instagram deal was announced, he claimed the deal was proof that he was right.
His reasoning: "I don't think the current world is about giant monolithic software companies owning content. It's whimsical one off apps that suit the need for a time and are replaced. Instagram doesn't solve Facebook's problem. There will be new reasons not to log on."
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