Facebook to buy Instagram for $1 billion

Tue Apr 10, 2012 9:09am EDT
 
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By Alexei Oreskovic and Gerry Shih

SAN FRANCISCO (Reuters) - Facebook will pay $1 billion in cash and stock for Instagram, a 2-year-old photo-sharing application developer, in its largest-ever acquisition just months before the No. 1 social media website is expected to go public.

The price was stunning for an apps-maker without any significant revenue, even when measured by the lofty standards of Silicon Valley, where startup valuations have soared in recent years. It highlights the rising stakes in the social networking market in which services such as Facebook need to constantly excite consumers with new features and mobile applications.

By acquiring Instagram - in a deal announced days after the startup closed a funding round that valued it at $500 million - Facebook may also have sought to absorb a potential rival or at least prevent it from falling into the hands of a major competitor like Twitter or Google Inc.

"Anytime you see a social platform that's growing that quickly, that's got to be cause to be nervous," said Paul Buchheit, a partner at the start-up incubator program Y Combinator and a co-founder of FriendFeed, which Facebook acquired in 2009.

"It would be better to have bought Twitter at this stage," he said of Facebook. "So if you're thinking this could be the next Twitter, it could be a smart thing to do."

The Instagram application, which allows users to add filters and effects to pictures taken on their iPhone and Android devices and to share those photos with their friends, has gained about 30 million users since it launched in January 2011.

Instagram says that as of the end of 2011, its users had uploaded some 400 million photos or about 60 pix per second, suggesting the sort of activity that Facebook seeks as it tries to wring revenue from mobile devices. Instagram launched its Android app just last week, garnering more than one million downloads already.

As Instagram's popularity has shot up in recent months, the company's leadership has mulled possible strategies to expand the service into a fully featured social network - much like a photo-driven, stripped-down version of Facebook, Twitter, or even Path, a company insider said.   Continued...

 
A photo illustration shows the applications Facebook and Instagram on the screen of an iPhone in Zagreb April 9, 2012. Facebook announced on Monday that it will pay $1 billion in cash and stock for photo-sharing application Instagram, making its largest-ever acquisition months before the No. 1 social media website is expected to go public. The popular Instagram application, which allows users to add filters and effects to pictures taken on their smartphones, has gained about 30 million users since it first launched in January 2011. REUTERS/Antonio Bronic