Facebook Announces Agreement to Buy Instagram

David Haueter
Apr 10, 2012

Facebook will be making the largest acquisition in its history when it acquires the incredibly popular Instagram photo app, a deal which was announced on Monday and should be completed in this quarter. Facebook has agreed to pay approximately $1 billion in cash and stock for Instagram, which has gained around 30 million users since it launched in January 2011. Instagram doesn’t have any significant sources of revenue, but reportedly closed a deal for $50 million in funding just last week (at a $500 million valuation — hello instant payoff!). Facebook will also acquire Instagram’s entire team of employees in the deal, which only consists of around a dozen people in the San Francisco area.

In a letter on the Instagram blog that addresses the Facebook acquisition (http://blog.instagram.com/), CEO Kevin Systrom said that “the Instagram app will still be the same one you know and love. You’ll still have all the same people you follow and that follow you. You’ll still be able to share to other social networks. And you’ll still have all the other features that make the app so fun and unique.” Facebook CEO Mark Zuckerberg made a similar statement in a note to Facebook users but also stated 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.”

Picture sharing is one of the most popular features used on Facebook. In the InfoTrends 2011 U.S. Social Network and Photo/Video Sharing End-User Survey, 66% of respondents said they view other’s photos on Facebook and 52% said they share their own photos there. Facebook has made some major improvements to the photo sharing and viewing experience over the last couple of years, adding the option to load photos in a high-resolution format and allowing for full-screen viewing of images. It’s a good bet that the large majority of Instagram users are also Facebook users, so as long as Facebook doesn’t make any significant changes to the app, the transition of Instagram into the Facebook family should be relatively seamless.

The price that Facebook was willing to pay for Instagram shows the importance of photography to Facebook, and it can work to improve the Instagram app to give it more reach. Instagram has always been a mobile phone app (starting with the iPhone and just recently becoming available to Android users), but there are also a lot of photos from dedicated digital still cameras that are posted to Facebook. It may be worthwhile for Facebook to make the Instagram filters and effects available for use in editing any photo that users may want to post to Facebook, not just mobile phone photos. Another way that Facebook can broaden the appeal of Instagram is by allowing users to follow Instagram users in their Facebook news feed.

While Facebook has shown little interest in monetizing the huge number of images available on their site by making it easier to print them, or even having their own photo printing app available on the site, the acquisition of Instagram may make that idea more appealing. A decision to do so could have a dramatic impact on the photofinishing and output market. Photofinishing vendors have been scrambling to figure out a way to get Facebook users to print more photos that are shared and viewed on the site, but none of them have done a good job of it yet. The addition of Instagram to the Facebook family should spur vendors to get truly usable apps in place before Facebook decides to make some money from the photos on its site and offer something on its own.


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