Facebook to buy Instagram for $1 billion

Mon Apr 9, 2012 3:55pm 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 with soaring startup valuations in Silicon Valley, as Facebook sought to absorb a potential rival or at least prevent it from falling into the hands of a major competitor like Twitter or Google.

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.

Instagram is "a property that would have been amazingly valuable to not just Facebook, certainly Twitter was in the hunt as well," said Lou Kerner, founder of the Social Internet Fund.

"I'm sure Google was interested as well. So to some degree an acquisition like this is both offensive and defensive. It would be a highly leveragable asset for anybody who wanted to compete against Facebook."

The acquisition marks an exception in strategy for Facebook, which has traditionally bought small companies as a means of hiring coveted teams of engineers. Facebook typically discontinues the acquired company's products or builds similar versions that it integrates into its service.

Instagram, however, will not only remain running, but Facebook will build features into it as time goes by, both companies said.

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.   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