Facebook buys Instagram for $1B

Social networking titan's move to acquire photo-sharing mobile app will help it grow user base and strengthen its dominance in photo sharing, especially for mobile platform, analysts note.
Written by Jamie Yap, Contributor

Social networking giant Facebook has acquired image-sharing mobile app Instagram for US$1 billion in cash and stock, in a move which analysts say was primarily motivated by its aim to strengthen its dominance in photo sharing, particularly in the mobile space.

Instagram has only about 1/14th the audience size of Facebook but it is a "formidable competitor [and] Facebook wanted to own it", said Jake Wengroff, global director of social media strategy and research at Frost & Sullivan, on the acquisition.

According to him, Facebook's motivation to acquire two-year-old Instagram was rooted in user photo sharing for the mobile platform--where the social network juggernaut has been building momentum, notably with iPad app launch last October. "Photo sharing is the lifeblood of social networking, and Instagram was building an audience fast, and specifically a mobile audience, which is an area and expertise where Facebook is lagging."

Another analyst, Phil Hassey, founder of capioIT, concurred, noting that Facebook will not only gain a mobile user base but also an "improved experience with photos".

Dane Anderson, vice president, research director and region manager at Forrester Research, said Instagram will also benefit from the investment, scale and reach of Facebook. "Already on an unprecedented growth trajectory, its user base should be boosted by the acquisition as long as Facebook allows it to retain its identity and autonomy; subsuming it into Facebook would be a mistake."

Both Facebook and Instagram each announced the acquisition Monday in separate blog postings. Facebook CEO Mark Zuckerberg said: "For years, we've focused on building the best experience for sharing photos with your friends and family. 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."

"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. We don't plan on doing many more of these, if any at all. But providing the best photo sharing experience is one reason why so many people love Facebook and we knew it would be worth bringing these two companies together," he added.

Instagram CEO Kevin Systrom said the company "couldn't be happier to announce that Instagram has agreed to be acquired by Facebook". Instagram, which recently released an Android version of their original iPhone app, allows user to take photos with their smartphone and apply various filters to them, before sharing them with their followers.

While both companies dropped hints of new and improved features for each of their services, they also emphasized that Instagram would remain intact despite the acquisition. Zuckerberg said Facebook was "committed to building and growing Instagram independently", and it would be "mindful about keeping and building on Instagram's strengths and features rather than just trying to integrate everything into Facebook". Systrom, too, said "it's important to be clear that Instagram is not going away… The Instagram app will still be the same one you know and love".

According to Facebook in a statement Tuesday, it will fork out approximately US$1 billion in cash and stock for Instagram. News of the acquisition comes ahead of the social networking company's plans to go public in May.

Asked how Instagram's acquisition by Facebook will impact its users, Wengroff said he did not think most will care, "but when certain features of Instagram start disappearing, there will be an exodus of users".

Hassey, on the other hand, said "backlash from Instagram users" would be expected since arguably, users from Facebook and Instagram expect different social experiences.

User reactions on Twitter have so far been mixed, although a seeming majority of tweets expressed disbelief and disappointment over Instagram's new ownership.

On twitter, Singaporean blogger Xiaxue said: "As long as Facebook doesn't change Instagram's timeline to some confusing shit once every few months or make the interface blue... Not that I dislike Facebook but let's face it it's not known for making things pretty... Not sure how it'd fare with a company so artsy."

Instagram user mtl_steve said he planned to delete his account, and tweeted: Goodbye Instagram, it was a good run. #sellout."

AlyxG tweeted: "Facebook has bought Instagram, smug hipsters everywhere weep." Another user, missciccone tweeted: "First, Facebook bought Instagram. Next, who knows? Perhaps tumblr. After that, maybe Path too. Slit your wrists, hipsters."

There were some positive reactions, including from aspiegeek who said: "Why does everyone think that Facebook will ruin Instagram just because it was bought? This just means both services will improve greatly."

Pinterest next?
With news of Instagram being acquired, Frost & Sullivan's Wengroff said Pinterest, an online photo "pinning" Web site, will "definitely be acquired" in the future, although the valuation may not be as high as that of Instagram.

"There will definitely be a bidding war for Pinterest," he said.

Hassey said an acquisition of Pinterest may or may not take place, but did not rule out Google as a potential buyer, as its Google+ social network "needs to do something to be considered relevant".

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