"What made Instagram worth $1 billion to Facebook?"

When asked this question recently, I responded with an immediate, "Nothing."

I'm not usually so terse or emphatic with my answers, as any longtime reader knows. But in this case, there really was nothing inherently valuable inside Instagram that made them worth the unbelievable sum Facebook agreed to pay. Yet they did it anyway. Clearly, there's something missing from a traditional valuation analysis here.

That missing piece is what Instagram could have become in the hands of a competitor or even on its own, had Facebook not gone ahead with the marriage. Nearing its IPO, Facebook was willing to overpay in order to quash any potential risks that Instagram posed, both to the company's reputation and its content stream.

And from the conclusion:

The threat for Facebook is simple: How do you keep the majority of the world's Internet users on your site? Once any company becomes as large as Facebook, it needs to worry, as the saying goes, about having "jumped the shark," i.e., passed its time of relevance. In other words, Facebook is continually at risk of becoming uncool - a kiss of death that could cause it to bleed users, just like predecessors Friendster and MySpace. The latter of those two companies went from a $640-million price tag when purchased by Fox to being sold off for a mere $35 million when its user base and revenue shrank by more than 75%. The former just went flat-out bust in a matter of months from its peak.

Facebook has to be concerned that the shift of computing to the mobile phone - for much of the world the only computer a person has, and for the developed countries the one we use the most when not working - could consign it to the same fate as its early competitors. Buying Instagram put one of Facebook's most abundant resources - money - to use protecting market share, not adding to it, while guarding its position at the top of the social heap.

David Fuller's view I'm thinking of launching an online site offering instant therapy for narcissists and voyeurs obsessed with social media. I am working on the platform in the garage with a few other kids and if we get the $500 million seed capital you will soon hear about www.getalife.com.