Facebook's anticipated post-IPO buying frenzy has begun before the social network has even gone public.
Facebook just agreed to buy the photo-sharing app Instagram for roughly $1 billion in cash and shares.
The exit is remarkable for a startup founded in October 2010 that had just nine employees in January and has raised a total of $7.5 million.Launched on the iOS platform for Apple devices, Instagram has grown exponentially, reportedly crossing the 25 million-user threshhold in early March. Its Android version launched last week and was downloaded 1 million times in the first 24 hours.
This acquisition does not have much precedent. Yahoo bought Flickr for $35 million in 2005. But Instagram has been positioned as a nascent social network that prompts users to act in a distinctive way, giving it value over and above what other photo-sharing platforms might offer.
Brands have followed users to Instagram in its 18 months of operation, with a cross-section including General Electric, Tiffany & Co., and Starbucks staking out real estate there. Approaches to the platform ranged from showing brand loyalists what's behind the veil at the company (for example, the Tiffany's workshop where jewelry is made) to soliciting user photos tagged with a campaign hashtag.
Facebook has clearly had Instagram in its sights from a product standpoint for some time. The New York Times reported last summer that Facebook was gearing up to add photo filters to its mobile app to take on Instagram directly. (The Instagram app's effect of warm, soft lighting and being slightly out of focus tends to make people look like they're on vacation in Rome in August and has a lot to do with its massive appeal.)
One interpretation of the purchase deal and its sky-high price is that Facebook wants to continue owning social as new networks such as Pinterest get white-hot (not to mention well-established Twitter.) Instagram users are obsessed with Twitter's most distinct cultural icon, the hashtag, which Facebook could be looking to gradually co-opt.
Another take is that Facebook is looking to make its mobile platform as robust as possible before the company starts to seriously deliver ads on it. (About six weeks ago, Facebook announced that "sponsored story" messages from a brand could be delivered to a mobile user's news feed, but the current mobile ad deployment is deliberately minimal.)
Instagram will continue to operate as a separate platform, and users will continue to have the ability to share on other social networks and to opt out of sharing on Facebook, according to a message posted to Mark Zuckerberg's timeline.
"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," Mr. Zuckerberg wrote.
Instagram co-founder Kevin Systrom said on the company blog that Facebook wouldn't change what made the app great. "You'll still have all the same people you follow and that follow you," he wrote. "You'll still be able to share to other social networks."