The news is out and social networking giant Facebook has purchased rockstar startup Instagram for a whopping $1 billion dollars in both cash and stock. This news may have overshadowed another transaction that went down rather quietly but has larger ramifications than the purchase of Instagram. Microsoft bid for and won 800 AOL patents that have a lot to do with the Internet and browsing in general. The auction saw Microsoft make away with the patents for a similarly colossal amount of $1 billion.
So, in the span of a few days, two huge companies (Facebook is currently valued at $100 billion) shelled out $1 billion but for very different things. So who spent their bucks in a better manner? Let’s first look at Facebook and the motives behind buying Instagram. To do this, we have to go back in time to a time when Facebook bought another budding app, Snaptu. Facebook said it was purchasing the app company for its engineering talent, but in reality, it was just buying out competition.
It’s hard to imagine Facebook cannot put together a team to build a mobile app. That said, Instagram seems to be more of the same, buy out the competition, not for the value they can add to Facebook but rather to ensure they never threaten Facebook.
This contrasts nicely with Google’s acquisition of Android, where Android has become a key standalone brand in the Google stable. With this in mind, and knowing that Instagram was planning to go global, as well as the fact that it only has 13 employees and no revenue, it points to Facebook neutralizing the competition, rather than adding value to Facebook.
On the other hand, Microsoft realizes this is the era of patent wars and they are preparing to go to war well-armed. Remembering that Facebook only recently received a slapping patent infringement lawsuit from Yahoo, it’s hard not to wonder whether Facebook should have been at the patent auction or fraternize with an app that ages photos. That said, Microsoft now has sufficient patents to go after anyone in the browser business, thanks to its Netscape patents.
That means Google, Apple, Mozilla and a host of others may be paying Microsoft royalties very soon. Either way you look at it, Facebook’s use of its $1 billion seems a far cry from the strategic and robust purchase that Microsoft has made, something Mark Zuckerberg may have to think hard about in the run up to the IPO, and as other companies come knocking with patent infringement lawsuits.