Instagram Business Model? Facebook Acquisition

Photo by franzrusso

As you know yesterday Facebook as acquired the mobile photo giant Instagram.

Just a couple of weeks ago I was wondering what could have the future reserved for Instagram, because I couldn’t figure out how the company would have monetized. The service is indeed free for everyone, starting from the app to the photo hosting, and since they haven’t put any interest in creating profile pages that people could visit from outside the app, there was quite no way to have some profit. I thought about selling promoted photos to show in the timeline, or promoted profiles, but for a company with such a service it wouldn’t have been enought.

And then.. here comes the acquisition. 1 Billion Dollars.

I’m pretty impressed by this decision from Palo Alto, the money spent does really worth the value? For me not, and I have quite some good reasons for saying this.

Zuck says that they are “committed to building and growing Instagram independently“, this means that they will not shut down trhe service, and this is really a good piece of news. Fact is that (always from Mark statement), the know how of the team will be used to improve the photo sharing features of the most famous social network. My point is.. If you were interested in developing your mobile app by implementing some vintage look to the shots, why don’t you use your many developers and just do that? I mean.. Insted of paying 1 billion dollar, you could have done it with just a few thousand.

1 Billion dollar spent in a company that doesn’t even have many chances to monetize, just a few days before the debut in the stocks market. We don’t also know the real value of Facebook until they do the IPO too, and from my point of view, and from their balance, they are already overvalued!

I think this probably the beginning of a new bubble.. the #socialbubble . We have already seen an example with Groupon that has lost great part of their value since the stock debut in the NASDAQ, who will be the next?

Tell me your opinions

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Programming and stock exchange – HFT

At first I want to do a small introduction on how markets work: once upon a time, operators could make some money through the inefficency of the market just with a telephone, by buying from a market and selling a few minutes later in another market to an higher price and gain from the price difference, this was possible because stock exchanges were not integrated as today with a computerized system, and before differences in prices could adjust from a place to another it would have taken a few minutes.

Nowadays this is not as much possible to take advantage of this inefficency, because prices are the same all over the world, and for example,  if you are looking for a stock price on a screen, it would be the same whether you were in Hong Kong or in New York.

This is possible because of information technology that, as everyone know, is becoming always more important by making the world to become smaller and smaller. Connecting one place to another in just a fraction of a second.

This is the point. Fraction of a second

The prices, as I said, adjust quite instantly all over the world, so that a human could not notice or profit by this small amount of time. Thing is, it is too fast! even if you tap continuously on a button.. and you couldn’t even determine if the price in that blink has raised or decreased.

Here it comes algorithmic trading or robo-trading, and in particular a special class of algorithmic trading which is called “high-frequency trading” (HFT), “in which computers make elaborate decisions to initiate orders based on information that is received electronically, before human traders are capable of processing the information they observe“. Wiki

We are talking of very small amount of time, nanoseconds, that just a machine could use. And if a developer could create an algorithm that is both efficient and fast enough to beat the competition it could become very rich.

Literally, this is a “millions dollars affair”, indeed some societies such as banks, hedge funds and main investors, are already developing their own systems to make million dollars profits a year. A great opportunity of job and profit for both investors and developers, in a branch that will be on the daily agenda of the next (not so far) future.

Algorithm will be the new trading operators.