Facebook to Buy Photo-Sharing Service Instagram for $1 Billion


Facebook, the world’s largest social network, said it had agreed to buyInstagram, the popular mobile-centric photo-sharing service, for $1 billion in cash and stock, giving it a stronger foothold on mobile devices. It would be Facebook’s largest acquisition to date by far.

“For years, we’ve focused on building the best experience for sharing photos with your friends and family,” Facebook’s chief executive, Mark Zuckerberg, wrote on his Facebook page. “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.”

Instagram is a social network built around cellphone photos. It lets people add quirky filters and effects to their snapshots and share them with friends, who can “like” and comment on them. The service has been something of a rising star in the start-up world. Barely two years old, it has attracted close to 30 million users, even though it worked only on iPhones until last week, when it released an Android version of its app.

Despite Instagram’s tremendous traction — more than 5 million photos are uploaded each day — the company, which is based in San Francisco, is still tiny. For much of its existence it has had fewer than seven employees, and it only recently topped 10. By way of comparison, Foursquare, another cellphone-focused social network, has nearly 100 employees serving 15 million users.

Facebook has been interested in Instagram for some time. In early 2011, Mr. Zuckerberg reached out to Instagram to discuss possibly purchasing the company, but Mr. Systrom chose to keep it independent and focus on expanding it, two Facebook engineers who asked not to be named said in August. At the time Instagram had less than 7 million users.

Though Facebook has tended to write much smaller checks in the past, Instagram’s surging momentum likely compelled it to make a billion-dollar deal. Last week, Instagram closed a $50 million financing round with several prominent investors, including Sequoia Capital, an early backer of Google; Thrive Capital, the firm run by Joshua Kushner; and Greylock Capital, an early investor of LinkedIn. The round valued the photo service at about $500 million, according to one person with knowledge of the matter, who requested anonymity because the discussions were private. With Facebook’s purchase, one week later, that investment has now doubled in value. The technology blog AllThingsD reported earlier that Sequoia was in the process of leading a $50 million round of investment in Instagram. Previously, the company raised $7.5 million in a round led by Baseline Ventures and Andreessen Horowitz.

Rebecca Lieb, an analyst at the Altimeter Group, described the Instagram acquisition as central to one of Facebook’s most urgent needs: how to make its service more appealing on smartphones.

“It’s easier to update Facebook when you’re on the go with a snapshot rather than with text,” Ms. Lieb said. “I think it’s definitely a mobile play.”

As more and more people log onto Facebook using mobile devices, Facebook is faced with the challenge of figuring out new ways to make money from the small screens. “We really don’t know how Facebook will monetize mobile platforms,” Ms. Lieb said. “The first step is to make Facebook friendlier on mobile devices, and this will certainly do that.”

Some Instagram fans quickly expressed concern about the fate of the service, since it is not uncommon for Facebook to buy a small start-up and then shut down its service, as was the case with FriendFeed, Hot Potato and most recently Gowalla, a location-based app. One such user, Giovanni Gallucci, said on Mr. Zuckerberg’s page: “I assume it’ll see the same fate as Gowalla. Oh well — it was fun while it lasted.”

But Mr. Zuckerberg said that Facebook planned to keep Instagram up and running as a separate service for the time being.

“We think the fact that Instagram is connected to other services beyond Facebook is an important part of the experience,” he wrote. “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.”

Kevin Systrom, chief executive of Instagram, echoed that in a blog post on his company’s site. “It’s important to be clear that Instagram is not going away,” he said. “We’ll be working with Facebook to evolve Instagram and build the network.”

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