Instagram Sold to Facebook for $1 Billion

Instagram Sold to Facebook for $1 Billion

Instagram was bought by Facebook according to a message posted by Mark Zuckerberg. The purchase price of $1 billion will be paid in cash and Facebook shares.

Here's what Mark Zuckerberg said on his blog post:

I'm excited to share the news that we've agreed to acquire Instagram and that their talented team will be joining Facebook.

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.

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.

We think the fact that Instagram is connected to other services beyond Facebook is an important part of the experience. We plan on keeping features like the ability to post to other social networks, the ability to not share your Instagrams on Facebook if you want, and the ability to have followers and follow people separately from your friends on Facebook.

These and many other features are important parts of the Instagram experience and we understand that. We will try to 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.

This is an important milestone for Facebook because it's the first time we've ever acquired a product and company with so many users. We don't plan on doing many more of these, if any at all. But providing the best photo sharing experience is one reason why so many people love Facebook and we knew it would be worth bringing these two companies together.

We're looking forward to working with the Instagram team and to all of the great new experiences we're going to be able to build together."

Instagram rocketed to 30 million iOS users in 18 months and was named iPhone app of the year in 2011. It is one of the best apps for taking and sharing photos from the iPhone. Its square images and assorted image filters let anyone make retro, techno and pretty pictures out of mundane shots of their kids, pets, food. Instagram's Android version, released last week, got millions of downloads immediately. But $1 billion, if true, is still a crazy number. Instagram doesn't make any money. Nor did it say it was focusing on revenue. It is still chasing big users. Kevin Systrom, Instagram's CEO, wrote this to calm down his users in response to the deal. An excerpt:

It's important to be clear that Instagram is not going away. We'll be working with Facebook to evolve Instagram and build the network. We'll continue to add new features to the product and find new ways to create a better mobile photos experience."

It's not clear what the Facebook deal means for the Series B funding round that may have closed last week led by Sequoia Capital, Thrive, Benchmark and Greylock at a reported $500 million valuation. But the fact that Facebook would pay 2x what the company was supposedly worth within a week's time suggests this is a defensive move. It certainly isn't desperate for more users (most if not all of whom are already on Facebook.)

Fred Wilson has said that Facebook is really about photos and this only underscores that. The mobile-social photo sector is still amorphously led but if anyone is harmed by this deal it is Yahoo. Facebook is really going after its Flickr property here, to put the nail further in Yahoo's coffin. (To its discredit, Yahoo hasn't done anything with Flickr lately). Zuckerberg is playing chess, making a defining move in how it stands in the photo space. It's like what Google did with YouTube.

One problem this will solve for Instagram's 30-something million users is that sharing an Instagram photo on Facebook from your phone pretty much sucks right now. Here comes the much needed integration: bigger photos, more detailed info about the filters, etc. Right now all you get when you post an Instagram photo on Facebook from your phone is a small link and a thumbnail image. A better integration will stimulate more sharing through Instagram.

But a $1 billion for 30 million users that pay nothing for the service? Sounds crazy but consider this: Instagram is getting bought for $33 per user. Facebook is supposedly trading with a market cap of close to $100 billion and has 850 million users, giving it a value of $117 per user. So it looks like a decent bit of funny-money arbitrage, using well-endowed Facebook shares to acquire users and solidify hold of a strategic asset at a lower valuation. We don't yet know how much of the deal is in cash vs. stock, so this calculation could be less favorable sounding but it still makes sense with Facebook currency.

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