Facebook has just finished a deal to acquire mobile photo sharing app Instagram for approximately $1 billion in cash and stock. Instagram will remain an independently branded standalone app that’s separate from Facebook, but the services will increase their ties to each other. The transaction should go through this quarter pending some standard closing procedures
Last year, documents for a standalone Facebook mobile photo sharing app were attained by TechCrunch. Now it seems Facebook would rather buy Instagram which comes with a built-in community of photographers and photo lovers, while simultaneously squashing a threat to its dominance in photo sharing.
At 27 million registered users on iOS alone, Instagram was increasingly positioning itself as a social network in its own right — not just a photo-sharing app. And it was clear that some users were doing more of the daily sharing actvities on Instagram rather than Facebook’s all-in-one mobile apps, which had to be cluttered with nearly every feature of the desktop site.
With the Instagram for Android launch last week, Instagram was going to get to 50 million registered users in a heartbeat after racking up more than 1 million in the first 24 hours. And with that kind of momentum, Facebook felt like it had to move — fast. After all, photo sharing and tagging are arguably what *made* Facebook.
Whatever you think of the price given the fact that Instagram had no revenues, the reality is it was going to be worth whatever Mark Zuckerberg felt like paying for it. Both Google and Facebook had approached Instagram several times over the past 18 months, but the talks clearly didn’t result in a deal. So Facebook was going to have to offer a huge premium over the last valuation for Systrom and the board to take any deal seriously.
[Instagram’s founders from left, Mike Krieger and Kevin Systrom. Portrait by Cody Pickens]
With the deal, Instagram will gain massive design and engineering resources by joining forces with Facebook, a big change after running as a famously lean company with just a handful of employees. Still, the deal seems to let Instagram stay somewhat independent and maintain some of its company culture. Instagram CEO Kevin Systrom writes in a blog post, “It’s important to be clear that Instagram is not going away.”
This is a really big departure from the way Zuckerberg has historically run Facebook as a single product. He has always been insistent that everything feed back into Facebook itself. Keeping Instagram as a separate product and brand is reminiscent of what Google has done with keeping YouTube and Android as separate fiefdoms within the company following their acquisitions.
Instagram’s investors included Benchmark Capital, Greylock Capital, Thrive Capital and Andreessen Horowitz, along with angel investors including Quora’s Adam D’Angelo, Lowercase Capital’s Chris Sacca and Square and Twitter’s Jack Dorsey.
The early investors must be thrilled with the price. From our understanding, the later investors, who put capital into the company at a $500 million valuation, seem happy with basically getting a 2X in a few days after the money was wired last Thursday.
Congratulations to Instagram’s founders Mike Krieger and Kevin Systrom. You opened the world’s eyes to seeing art in everyday life, and now Facebook has opened its doors to you.