It used to be said that to make a small fortune all one had to do was to start with a large fortune and buy a newspaper publishing business.  That was in the days before the Internet had begun to erode the health and wellbeing of the traditional newspaper industry.

Facebook is closing in on a large fortune when it lists on Nasdaq later this year.  If you believe the hype, the social networking company will be valued between $80 and $100 billion. Such a valuation requires an unshakable, quasi-religious belief in the prospects of a business that has yet to turn $1 billion of annual profit.

Instagram is a photo sharing and social media business. It is yet to celebrate its second birthday and has 13 employees.  It has no revenue or profit to speak of.  It has benefitted from relatively modest levels of capital investment. What is does have is around 30 million users across the world and the potential to steal some of Facebook’s lunch.

Facebook plans to acquire Instagram in a cash and share deal that is understood to value Instagram at $1billion.  If the price is accurate, it values the business at more than the New York Times, one of the world’s best known and highly respected newspapers. The New York Times has been publishing since 1851.

Some of the cash to pay for the acquisition will doubtless come from the impending Facebook floatation, while the shares that Instagram’s investors receive in Facebook will be worth whatever the market determines they’re worth when they’re passed out.  A cynic might suggest that the shareholder cash coming Facebook’s way is already burning a hole in its pocket.

Despite the hype, despite the levels of participation and the valuations being bandied around, social media is a remarkably immature industry.  Is Instagram worth $1 billion?  I have no idea. Neither does anyone else.

Silicon Valley is full of very smart people and the cycles of market dominance are considerably shorter in the digital world. There’s little about Instagram’s technology or business model that aren’t easily replicable. Remember AOL?  Remember Yahoo?

I am a firm believer in the enduring influence and importance that social networking will have in our lives and in business in the future.  I’m less convinced, however, that the leading players today will still be leading in five or ten years from now.

In the late 1990s, people got confused between the Internet’s gift of cheap, instantaneous communications with an ability to generate profits quickly, while the sale of one start-up at an eye-watering price made people in similar start-ups’ eyes water too.  When the bubble burst, many people found themselves considerably poorer than they had been, or thought they were.

It would take a very brave or very stupid man to put his hand in the fire a second time.