In Defense of Facebook's Instagram Purchase

NEW YORK ( TheStreet) -- Here's the easy part: lament that Facebook paid too much for Instagram. It isn't hard to do.

Developed for Apple's ( AAPL) iPhone to doctor and share photographs and now running on Google's ( GOOG) Android system, Instagram is only two-years old, has about a dozen employees, produces precisely zero revenues (which puts it in the profit category of -- don't ask) but sold for $1 billion.

The basic facts easily call to mind the most indulgent deals of the Internet bubble -- and perhaps for good reason. For historical context, just about all media outlets mentioned their favorite bad deal of that late 1990's period.

The Wall Street Journal, however, is one of the few to point out another historic possibility: the Instagram deal, they wrote, "harkens back to Google's $1.6 billion acquisition of video-sharing site YouTube in 2006. At the time, analysts questioned the hefty price tag. But the deal instantly made Google a leader in Internet video and allowed it to expand its advertising to new formats."

Moreover, too much of the media either outright ignored solid justifications for the deal (CNNMoney.com) or merely mentioned one in passing, dispatching their duty then hurrying on to the laments.

That's how The Washington Post rolled, touching briefly on the concept that Facebook might need to stem damage to their mobile platform, before chronicling a myriad of negatives, from Facebook's ownership of photos to their history of raiding firms for talent, leaving nothing but a husk.

Among other reasons for the deal, Reuters, by contrast, did well to point out that Facebook can deploy Instagram's photo technology to good effect and probably had to act to keep Instagram out of Google's hands.

Look: Facebook probably overpaid. But every deal has a chance. The media more frequently assumes success of mergers, but this time they went into automatic dismissal mode and that's not right either.
At the time of publication, Fuchs had no positions in any of the stocks mentioned in this column.

Marek Fuchs was a stockbroker for Shearson Lehman Brothers and a money manager before becoming a journalist who wrote The New York Times' "County Lines" column for six years. He also did back-up beat coverage of The New York Knicks for the paper's Sports section for two seasons and covered other professional and collegiate sports. He has contributed frequently to many of the Times' other sections, including National, Metro, Escapes, Style, Real Estate, Arts & Leisure, Travel, Money & Business, Circuits and the Op-Ed Page.

For his "Business Press Maven" column on how business and finance are covered by the media, Fuchs was named best business journalist critic in the nation by the Talking Biz website at The University of North Carolina School of Journalism and Mass Communication. Fuchs is a frequent speaker on the business media, in venues ranging from National Public Radio to the annual conference of the Society of American Business Editors and Writers.

Fuchs appreciates your feedback; click here to send him an email.

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