04/12/2012 11:13 am ET

Instagram, Facebook, And The New Zero-Revenue Acquisitions

Ever since Facebook announced plans to spend a billion dollars to acquire photo-sharing startup Instagram, critics have rightly wondered why even a Silicon Valley giant flush with cash would spend so much on a company with $0 in revenue and no business model. But it's far from the first zero-revenue startup acquired for millions recently. It's not even the first one acquired by Facebook.
The social network spent tens of millions grabbing startups such as FriendFeed, Hot Potato, and Beluga--companies with little or no revenue, and no established business models. Like Instagram, there were other, perhaps less tangible (non-monetary) benefits to the acquisitions, from talent to technology to users. Other companies have followed the same strategy.