Facebook announced Monday that it was buying photo-sharing application Instagram for $1 billion in a mix of cash and stock. Investor Uprising Editor in Chief R. Scott Raynovich says the sky-high valuation for the two-year old company will pose risks to large public Internet companies such as Google (Nasdaq: GOOG) and Facebook, which are increasingly competing with faster startups and must now pay to acquire more of them.
“You mean to tell me that you are the most powerful social-networking company in the world, and you can’t come up with a better photo-sharing app than 12 hackers in pajamas?” wrote Raynovich in his regular IU blog. “If a garage full of coders can beat Facebook with a photo-sharing app in two years, does that mean there might be more risk in the social-networking market than people think? Yes.”
The blog points out that Facebook is spending $1 billion to defend itself against a tiny startup, and that odds are companies such as Google and Zynga (Nasdaq: ZNGA) may follow the trend of spending huge sums to scoop up startups offering innovative features.
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