Facebook Inc., the world's biggest social network, said Monday it will buy Instagram, the photo-sharing application with over 30 million users, for $1 billion in cash and shares as it seeks to compete with other major technology firms.
The deal came just three days after San Francisco-based Instagram debuted on Android devices of Google (Nasdaq: GOOG) and added a million users within 12 hours of release. Apple (Nasdaq: AAPL), another force in the mobile world, named Instagram as the best iPhone application in 2011.
Facebook's acquisition of Instagram is a clear shot across the bow of both Twitter and Google, said Aram Zucker-Scharff, a social media consultant and assistant director for marketing and communications at George Mason University's Office of Student Media.
Zucker-Scharff said that Facebook's acquisition will likely prevent Instagram from ever being integrated into Google+, which would have been immensely beneficial for the search giant's struggling social network.
First Time Acquisition
Mark Zuckerberg, CEO of Facebook, said Instagram would remain a separate brand from Facebook, allowing users to use it with other social networks.
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, he said in a statement. That's why we're committed to building and growing Instagram independently.
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, he added.
Last week, Instagram was valued at $500 million and raised $50 million in a second round of financing from venture capital investor Sequoia Capital, AllThingsD reported. The company's entire first round was supplied by Benchmark Capiital.
By contrast to the value of Instagram -- which employs only a dozen people -- last month bankrupt Eastman Kodak (Pink: EKDKQ) received a judge's permission to sell its Kodak Gallery service to Shutterfly (Nasdaq: SFLY) for $23.2 million. Other rivals include Yahoo's (Nasdaq: YHOO) Flickr and Hewlett-Packard's (NYSE: HPQ)'s Snapfish, both acquired from their founders.
The application's vast user base and emails have been cited for its high valuation, despite the fact that it has not found a revenue stream.
That is something in the marketing world that has an actual value to it, said Joshua Fouts, executive director of the Science House Foundation, a technology advocacy group.
Facebook, which claimed as many as 845 million users in its initial public offering filing on Feb.1, is seeking to raise as much as $5 billion, which would value the Menlo Park, Calif.-based site at $100 billion. The IPO has not yet received approval from federal regulators. The company said at the time it had no specific uses for the funds raised from the public beyong paying personal income tax bills for Zuckerberg, who will control nearly 60 percent of the stock.