That's exactly what this was. That's why he bought them a day after they closed a $50 million investment Zuckerberg freaked out about Instagram's plans to become much bigger, especially now that they just launched on Android, too.

and keeping Instagram away from Google. it's a good move.

But back to the original proposition, is this indicative of a bubble when you drop 1 Billion, or >1% of your estimated market cap on a preventive/defensive measure?

There are a few ways to look at this. The 1% is in cash and shares and we don't know the proportion or I haven't seen that anywhere so far.

Now to put the question in context if you have a small company that is worth, say $500,000, then 1% is $5000 you might spend that much (in cash alone yearly) as "insurance", say for property/casualty or liability. And you would pay that no matter what the business climate if you perceived a risk to your business, right?

But it could indicate a bubble simply because if the market is up people are more likely to overpay for anything because they feel very upbeat and enthusiastic about the future.

So paying a large number (and 1 billion is a large number and not trivial no matter how you slice it) would be more likely to happen in a bubble.

But there are to many variables in this that are not know to draw a definitive conclusion.

That said my feeling is we are in a period of irrational exuberance.

you ever play chess? A pawn is 2.6% of your game's value.

I daresay that's true, but not exactly relevant. I've also played blackjack, roulette, rock/paper/scissors, and I'm not sure if logic and tactics that work in games are always valid business plans...

There is not really a clear cut metric for deciding if we are in another bubble or not.

This is an excellent and important point, maybe the most insightful I've read in this thread.

Whatever value Instagram has for Facebook, it probably has at least double that value for Google, who could buy it just as easily. By paying a premium and showing major interest first, Facebook preempted an opportunity for Google to get some traction in the social space. Very smart move.

more like keeping instagram away from twitter

If you have billions to (over)spend, what does it say when you are terrified of tiny competitors who have shown no ability to compete with you, no revenue model and no long term ability to monetize in place?

But for 1 billion dollars, seriously?

For a fraction[1] of that they could have cloned the software pixel-by-pixel and weaved it in with facebook in a way that the original instagram couldn't.

I have trouble believing instagram was about to turn into an 1 billion dollar threat.

[1] Understatement of the month