Palo Alto, California — The world’s biggest social media magnate, Facebook Inc., has just hopped on to its latest shopping spree, shelling out a billion-dollar 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.
Photos are critically important for Facebook, which has rather been slow to innovate in a rapidly escalating mobile arena in the important consumer sphere. By contrast, Instagram has taken the arena by storm, with its delightful and elegant app and the motto, ‘Fast beautiful photo sharing’.
“For years, we have been concentrating on building the best experience for sharing photos with your friends and family.” Facebook founder and CEO Mark Zuckerberg announced on his Facebook page Monday. “Now, we will be able to work even more closely with the Instagram team to also offer the best experiences for sharing beautiful mobile photos with people based on your interests.”
The price tag was stunning for an apps-maker without any considerable revenue, even when measured by the lofty standards of Silicon Valley, where startup valuations have soared in recent years. The move emphasizes the rising stakes in the social media market in which services such as Facebook need to constantly excite consumers with new features and mobile applications.
Expressing views, a distinguished analyst noted– Facebook and CEO Mark Zuckerberg “is going to have a lot of money to spend in the near term and I would expect them to use it to engage users to [Facebook] however they can,” said analyst Charles King. “The massive popularity of Instagram for Android makes it look like a no-brainer.”
The transaction is believed to conclude later this quarter, Menlo Park, California-based Facebook said today in a statement on its site. The company plans to let Instagram remain independent from Facebook.
Additionally, the San Francisco-based company–with only 13 employees–boasts 30 million Apple iPhone users before it came to Google’s Android last week, where it got more than a million new users in just 12 hours.
Interestingly, by pocketing Instagram — in a deal disclosed 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 is flourishing that quickly, that is 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 are thinking this could be the next Twitter, it could be a smart thing to do.”
The Instagram application, which empowers 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 201
“We need to be extremely aware about keeping and building on Instagram’s strengths and features rather than just trying to integrate everything into Facebook,” Facebook Chief Executive Officer Mark Zuckerberg said in a posting on his page. “That is why we are committed to building and growing Instagram independently. Millions of people around the world love the Instagram app and the brand associated with it, and our goal is to help spread this app and brand to even more people.”
The deal marks the first time Facebook has acquired a product and company with so many users, Zuckerberg added. Facebook is reinforcing its features as it prepares for an initial public offering. The company plans to raise $5 billion in the IPO, making it the biggest Internet offering on record. The IPO would value Facebook at as much as $100 billion, according to people familiar with the matter.
Developed by Kevin Systrom and Mike Krieger, Instagram launched via Apple’s App Store in October 2010, and less than a year later claimed 10 million users.
For his part, Zuckerberg seemed to stress that this was a one-shot deal.
“This is an important milestone for Facebook because it is the first time we have ever acquired a product and company with so many users,” he wrote in his announcement. “We do not plan on doing many more of these, if any at all.”
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