Facebook to acquire photo-sharing app Instagram for $1 billion

The popular photo taking, editing and sharing app Instragram which just recently made a successful entry into Android will soon become Facebook property. The news of Instragram being acquired by the social networking giant was announced by Facebook CEO Mark Zuckerberg in a post on his Facebook timeline.

The latest Facebook acquisition will add the excitement as the company prepares to hold its initial public offering in May.

Facebook will pay $1 billion in cash and stock for Instagram. 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.

"I'm excited to share the news that we've agreed to acquire Instagram and that their talented team will be joining Facebook," wrote Zuckerberg. "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," he added.

Zuckerberg also said that the Instragram acquisition was an important milestone for Facebook as it the first time when the company has acquired a product and company with so many users.

The Instagram app for iPhone and iPod Touch has been downloaded more than 30 million times and within four days of it hitting Google Play (previously Android Market) it registered about five million downloads. Free to use, Instagram lets people apply various filters to the photos they snap with their mobile devices. Some of these make the photos look as if they've been taken in the 1970s or on Polaroid cameras.

Instagram CEO Kevin Systrom also announced the acquisition on his company's official blog.
"We're psyched to be joining Facebook and are excited to build a better Instagram for everyone," Systrom posted. Instagram was founded by Kevin Systrom and Mike Krieger in San Francisco and the app launched on Apple's App Store on October 6, 2010.

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.

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.

Both Zuckerberg and Systrom stressed that existing Instagram services will continue and new features will continue to be added. Facebook will "learn from Instagram's experience to build similar features into our other products. At the same time, we will try to help Instagram continue to grow by using Facebook's strong engineering team and infrastructure," Zuckerberg said.

Instagram, with roughly a dozen employees based in San Francisco, was reportedly in the process of wrapping up a $50 million funding round last week from investors including Sequoia Capital, according to the technology blog AllThingsD.com. The funding valued the company, founded in early 2010, at $500 million, it said.

The deal, a closely kept secret at the tiny start-up, is expected to close this quarter. CEO Kevin Systrom announced the transaction to Instagram employees at a 9 AM meeting on Monday, according to the source inside Instagram.

The Instagram deal is expected to resemble Google Inc's $1.65 billion acquisition of video service YouTube in 2006. YouTube retains its own offices in San Bruno, California, and largely operates independently of Google.

The acquisition came as Instagram was in the process of meeting with venture capital firms about raising more funding, according to one source familiar with the matter.

"It was not long-planned," the source said on condition of anonymity, referring to the Facebook acquisition. "What happened is that Facebook must have come in with a number."

In addition to bolstering Facebook's photo-sharing and mobile capabilities, one side benefit of the deal for Facebook, the source noted, is that it prevents rival Twitter from acquiring the popular app.

With its purchase, Facebook said it would continue to develop Instagram as an independent app that remains compatible with other social networking services.

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