After first trying to compete with photo filter and sharing application Instagram, social media giant Facebook this week instead plunked down a cool billion in cash and stock to buy the company.
"For years, we've focused on building the best experience for sharing photos with your friends and family." Facebook founder and CEO Mark Zuckerberg announced on his Facebook page Monday. "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."
Zuckerberg emphasized that while Instagram employees will now work for Facebook, the company will be run independently because "we need to be mindful about keeping and building on Instagram's strengths and features rather than just trying to integrate everything into Facebook."
Developed by Kevin Systrom and Mike Krieger, Instagram launched via Apple's App Store in October 2010, and less than a year later claimed 10 million users.
As recently as August, Facebook was working on developing its own filters to give users' photos a retro look, as Instagram does, The New York Times reported. The paper said the social media giant had also made an attempt to buy Instagram then, after it raised $7 million in a round of funding from Benchmark Capital. Reports said Monday that the San Francisco-based company had been approved for another $50 million from various investors, though the free app currently generates no income.
Monday's news fueled speculation that Facebook, on its way to an expected $100 billion initial public stock offering, viewed the fast-growing application as a potential competitor that could capture the interest of young people who may be getting bored with Facebook.
Last week, Instagram released an Android app in addition to its already successful iOS app for iPhone, giving it access to the vast majority of the U.S. smartphone market and a sizable chunk of the international market. Instagram reportedly saw 1 million downloads in its first 12 hours via Google Play (the new service that consolidates media and app sales).
News of the deal caused a social media firestorm, with Tweets using the hashtag #Instagram moving so quickly across the screen, faster than one per second at midday Eastern time, it was hard to read them.
Those using the hashtag seemed to tend toward the negative. "#Facebook will ruin #Instagram" said one Tweet, while another said, "Facebook buys Instagram and it is instantly uncool." Added another, "Let's see how they'll shove advertisements down our throats now."
"Pinterest will be next?" asked another Tweeter. Some questioned the wisdom of the deal while others said they would stop using Instagram because of privacy concerns about Facebook. One man tweeted a screen shot of a chat with his teenage daughter who said Facebook was "for old people" and would ruin Instagram.
Reaction on Facebook was different, with more than 100,000 people liking Zuckerberg's post in the first four hours. "Congratulations," wrote one commenter. "Like putting peanut butter and chocolate together," said another.
We asked Charles King, principal analyst at Pund-IT, if this was the cusp of a new trend of Facebook, with nearly limitless resources, simply snatching up anything that seems to match its momentum.
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"The fact is that the company is going to have a lot of money to spend in the near term and I would expect them to use it to rope in (and tie up) users to FB however they can," King said. "The massive popularity of Instagram for Android makes it look like a no-brainer in that respect."
We may end up looking back on the mobile-app era the way we do now at the dot-com boom of the 90s, he said.
"The massive funding of major players like AOL, etc. was followed by a rush of 'three guys in a garage" start-ups that aimed to hit the jackpot for what were, in retrospect, pretty meager efforts," King aid. "If the Instagram deal is followed by similar acquisitions by FB, etc., it could be that it's the turn of app developers to shake the Internet money tree. "
For his part, Zuckerberg seemed to stress that this was a one-shot deal.
"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," he wrote in his announcement. "We don't plan on doing many more of these, if any at all."