Facebook bought Instagram for $1 billion. It paid that kind of money for a photo sharing app that can be used for free. Instagram has no revenue. For those of us who have been around the block for a while, deals like this are like déjà vu. We have seen this all before, way back in late 90s. The Internet was beginning to boom. New web-based businesses were supposed to defy gravity. Earnings didn’t matter. All of a sudden we talked about eyeballs and clickthrough rate as the measures of success, without even considering any financial data. The question is, are we seeing this exact same bubble – again?

Here are a few data points from the old bubble, for those of you who have forgotten:

Boo.com spent $188 million in half a year attempting to create a global online fashion store. They went bankrupt in May 2000.

Pets.com sold pet supplies to retail customers. Although sales rose dramatically, the company was weak on fundamentals and actually lost money on most of its sales. This was a fundamental flaw that the company couldn’t make up in volume.

During this first tech bubble several large companies had similar stories. There was WorldCom’s rise and fall:  The company filed for bankruptcy in 2002 and former CEO Bernard Ebbers was convicted of fraud and conspiracy.

In the late 1990s it was enough for a company to have .com in the name, perhaps enriched by a leading “e” prefix. The market rewarded companies that were hardly more than a website with no revenue-producing business. Investors as lost money in the bubble because it turned out that many of these companies had no sustainable business model.

This time around, LinkedIn and Groupon are “real” companies. They have a business model. They have real revenues and profits.

Today’s start-ups are smaller and require less up-front funding because of cloud computing. In the late 1990s Venture Capitalists dominated the investment landscape and very often provided the fuel for some of the excesses. This time around Venture Capitalists come into a deal at a later point in time and have a lesser role.

Still, the similarities are striking enough to remain concerned. The social media hype leads to companies that try to “jump” on the social media bandwagon. If you throw a stone on a street corner it’s hard not to hit a social media expert. The job market in Silicon Valley is red-hot again. And certainly valuations have sky-rocketed. LinkedIn went public as one of the most expensive companies in America based on the ratio of its market value to its annual sales. Facebook is on a similar trajectory.

While today’s companies such as LinkedIn, Groupon, and Facebook are real companies, investors can still lose real money just like they did in the 90s tech bubble.

So, did Mark Zuckerberg do the right thing? Instagram has grown to over 40 million users. It went from 30 to 40 million users in only 10 days in early April of this year. It recently launched on the Android platform. Now it has access to another half a billion users. There is plenty of room to grow.  Facebook saved itself time and headaches. It bought the competition while it was able to do so. Mark did what Mark had to do. The rest of us, including Facebook’s board, will watch what’s happening next.