Facebook Bought Instagram at $1 Billion !?

The very famous iOS photography app Instagram just expanded its territory to Android a week ago. Today Facebook announced that it will buy over Instagram at ONE BILLION US dollars in cash and stocks (link).

*Photo from Newspress.me

That might be a surprise to most of us. Why would Facebook acquire Instagram, and at such an unbelievable price?

Listen to what Mark Zuckerberg, the CEO of Facebook, said in his blog:

"For years, we've focused on building the best experience for sharing photos with your friends and family. Now, we'll 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."

While at the same time we can take a look at Instagram, the app launched two years ago at Apple's iOS app store. It reached one million registered user by the end of year 2010, and 5 million in June 2011. Just within three months, the number doubled to 10 million. Despite many awards that Instagram has got and the buzz it creates in the mobile app space, it has been struggling to find a sustainable business model to grow.  Compared to the similar case that Yahoo! acquired flickr at a price of 35 million dollars, to me, the acquisition of Instagram seems to be money burning. One billion is a considerable amount even to corporate like Facebook, which is a quarter of its cash-in-hand by the end of 2011.

Given such a huge expense, how would Instagram benefit Facebook?

A quick thought is that they plan to integrate Instagram into Facebook to further strengthen their competitive advantages.

However, interesting to note what Mark said,

"We believe these are different experiences that complement each other. But in order to do this well, we need to be mindful about keeping and building on Instagram's strengths and features rather than just trying to integrate everything into Facebook.

That's why we're 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."

It is hard to believe that Facebook will keep Instagram independent forever. They must have some future plans to make Instagram serve the purpose better, should it be in the near future or a more long term vision.

There are also some opinions saying that this acquisition is more about a defensive move. Facebook may worry about the situation if Google acquired Instagram instead, given the fact that Google has been promoting very hard its own social network Google+. Instagram is definitely a huge enabler to bring more users to Google+ and to the date, there is no sharing settings of Google+ on Instagram.

However, it is still a very long way to go before Facebook can fully utilize the potential of Instagram and recover its investment of 1 billion.

One takeaway from this news is that, as one of the comments pointed out, imagine yesterday the employees at Instagram still owned nothing, now they've become millionaires, see how you could be rewarded if you do a little hard work. :)

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