December 14, 2020
I can't find a single positive news article on the Instagram acquisition at the time it was announced.— JD Ross (@justindross) December 10, 2020
Every single one talked about how $1B for a 13 person company with no revenue was proof of a new internet bubble
I wrote before how one consequence of getting old is being less surprised. It's comforting to think I'm getting better at seeing the patterns, and I think there's some truth to it.
But I also think seeing the patterns—predicting where things are headed—is getting more difficult. Perhaps, as Ray Dalio says, I'm just an ant, too zoomed in to see the larger trends. Perhaps with a different lens—more distance, greater abstraction—things would be more predictable.
I'm still not convinced that's true, though. Sitting here in the last month of the decade, there have been a lot of surprises:
(1) Facebook purchased Instagram in 2012 for $1 billion. I'd just arrived in Silicon Valley, and it seemed unthinkable to plop down $1 billion for a social networking site with no tangible assets, only a handful of employees (JD above says it was 13), 30 million users and no revenue. People called it "the Youtube deal of the 2010s", recalling Google's $1.65 billion purchase of Youtube in 2006. Just two years later, in 2014, Instagram looked impossibly cheap when Facebook upped the ante to $19 billion, later increased to $22 billion, for nascent social networking app WhatsApp. For comparative purposes, that price was the entire market value of Kellogg's—Raisin Bran and Corn Flakes—for no tangible assets, 70 employees, and $20 million in 2013 revenue.
(2) At around the same time (2012), I remember wondering whether Facebook itself, the big growth story, would come back from $20 after falling almost 50% from their IPO price around $38. Eight years later, with stock testing $300/share, I think we can consider that one answered—$1 billion in sales by 2012, today, $70 billion in sales after 15 years in business. Nothing, ever, in the history of capitalism, has grown this fast.
(3) Also around 2012/2013, I remember getting recruited by some upstart ride-sharing company, with sloppy engineering practices and a legally questionable business model. That company was Uber. I sure didn't think they could overcome the taxi raj.
(4) Intel, the preeminent semiconductor company and pillar of Silicon Valley, was Apple's first port of call to manufacture the iPhone's chipset. Failing to see how the engineering investment could work—$20 CPUs inside $200 iPhones, when you're used to making $150 CPUs in $1500 PCs, in a "niche market" (high-end phones) no less—Intel said no.
Apple shipped 218 million iPhones in 2018.
(5) Along the way, Apple became the first trillion-dollar company in 2018. But why stop there? In mid-2020, they became the first $2 trillion market cap company.
(6) "The young don't vote". Until Barack Obama showed up in 2008 with "Hope and change"—and a sophisticated understanding of how the Internet was reshaping campaigning, and fundraising. Then Donald Trump picked up the torch, sailing to victory on "Make America Great Again"—and being a rare member of the over-70 set who's great at Twitter. Alexandria Ocasio-Cortez wasn't "supposed" to beat Joe Crawley any more than Donald Trump was "supposed" to beat Jeb Bush or Marco Rubio, but like him, she's very good at using modern media tools, particularly Instagram and Twitter.
(7) Throughout the 2000s, the fed funds target rate hovered around 4-5%. Today, sovereign rates are negative all over Europe, the 10-year treasury is yielding 0.89%, and asset prices are in the stratosphere across the whole economy.
Here's what I take from all this:
(1) Communication is an essential human activity and whoever mediates/controls it is enormously powerful. Looking back, it's not hard to see how Facebook, then WhatsApp and Instagram—would be so powerful, as communication platforms. I think the effect size took people by surprise, though.
(2) I wanted to think there were some folks at Facebook in BD or Corp Dev who saw the potential of Instagram. Like, maybe there were some insiders who had this all figured out? Go where the best are?
I guess not:
Claims were that he literally did it *without the board*. CEO-to-CEO— JD Ross (@justindross) December 10, 2020