If a trifle of a service like Instagram can get sold at 1 billion a legitimate piece of technology infrastructure valued at $1.2 seems reasonable to me.
Edit: corrected Instagram sale price from 2 to 1 billion, thanks Elliott
valuation of a social network = <# of users> * <$ value/user>
valuation of infrastructure = <# of deployments> * <margin/deployment>
The problem is that we cannot get an accurate estimate for the total value of a social network. We can usually get an accurate count of the number of users, and can even decently predict the number of potential users. However, when it comes to the value per user we have no idea what that number is because the avenues of monitization are so murky. Can instagram get just as much money per user as facebook? How about compared to Flickr users? How about SnapChat? Can we get a reasonable predict which social networks are fads and which are here to stay? To me, the value of a social network is much too foggy to reasonably predict.
The valuation of an infrastructure company is much easier to predict - it's a matter of price setting. If you are charging $100k for a product, and every fortune 500 company needs your product at that price, you can expect to be worth about $500M.
I don't really disagree with anything you say. But I think keeping longevity in perspective is important as well. Instagram is (mostly) at the mercy of fickle tweens and 20 somethings. If Mongo has a good management team they could be in the game long after Instagram becomes a shadow of it's former self, if you're selling to Fortune 500s odds are you aren't selling to them only once.
Edit: corrected Instagram sale price from 2 to 1 billion, thanks Elliott