The purchase

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Facebook snaps up Instagram app for $1 billion

Facebook took steps Monday to bolster its mobile strategy, acquiring popular photo-sharing application Instagram for about $1 billion in cash and stock.

The purchase, the social network's largest and the most expensive by far for a smart-phone app, gives Facebook a company that's adept at producing mobile apps as well as a passionate community of more than 30 million users. It also neutralizes a potential competitive threat from the San Francisco startup, whose 28-year-old co-founder has talked about building a large global business.

The move comes on the eve of an expected initial public offering from Facebook that could value the Menlo Park company at $100 billion.

Facebook CEO Mark Zuckerberg noted that the deal was unusual for a company that traditionally has bought startups primarily for their engineering talent. The price tag makes it one of the priciest startup acquisitions ever, in the same league as Google's purchase of YouTube for $1.65 billion in 2006.

The acquisition came before Instagram began generating any significant revenue. While it planned to eventually include some form of advertising inside the app, the company had yet to implement any.

That didn't stop Instagram from closing a new $50 million round of funding just last week that valued the company at $500 million, according to tech websites All Things D and TechCrunch.

'Important milestone'

"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," Zuckerberg said in a Facebook post. "We don't plan on doing many more of these, if any at all."

Instagram proved irresistible to the social-networking giant because of its shared interest in top-notch photo-sharing experiences, Zuckerberg said. Facebook users upload 250 million pictures to the site a day, and the function is seen as a crucial tool for retaining a large audience on mobile devices.

"This is a step forward for Facebook," said Ray Valdes, an analyst at Gartner, a market-research firm. "They're moving into becoming a Web conglomerate like Google."

Facebook's smart phone and tablet apps, while widely popular, have been criticized as slow and difficult to navigate. Zuckerberg said Facebook hopes to learn from Instagram's expertise.

The acquisition marks the end of wild startup experience for Instagram, which released its app for Apple devices in October 2010 and quickly became a darling of the creative set. It was founded by Kevin Systrom and Mike Krieger, who met in graduate school at Stanford and went into business together.

Their first effort, a location-sharing service called Burbn, failed to gain traction. But their follow-up, Instagram, was a hit out of the gate - despite being available only on the Apple operating system. Last week the company released an app for Google's Android phones, and 1 million new users signed up the first day.

The company has been slow to build its team, and only has about 13 employees working in a South Park office. All are expected to share in a rich payday, and Systrom - whose stake in the company was reported by Wired to be 40 percent - could walk away with $400 million.

Some users wary

For users, the question is whether Instagram will retain its luster after it integrates with Facebook. Twitter lit up with complaints after the news broke Monday, with dozens of people saying they planned to uninstall the app in protest.

"I hope it doesn't do anything to drain away the creative juices that made it such an innovative and exciting site," said Bex Finch, a San Francisco photographer who has more than 10,000 followers on Instagram. "It's been really wonderful for me and my career."

Finch said she routinely gets freelance work from people who follow her Instagram photos. Once-hot photo-sharing website Flickr languished after being acquired by Yahoo in 2005, Finch said, adding that she hoped Instagram would escape that fate.

Facebook, citing the mandated quiet period before its planned IPO, declined to make Instagram executives available for comment Monday.

In a blog post, Systrom sought to reassure Instagram users that the app would not be diminished.

"The Instagram app will still be the same one you know and love," Systrom said. "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."

The company's investors included Andreessen Horowitz, Baseline Ventures, Benchmark Capital and Greylock Capital.