Facebook Buys Photo Sharing Network Instagram For $1bn

As soon as Mark Zuckerberg announced today that Facebook is buying the extremely popular photography app-maker Instagram for a reported $1 billion, there has been a lot of speculation as to why they would do that. Many market watchers are considering this move reminiscent of Google’s purchase of YouTube few years ago. To others, it’s the biggest sign yet of a growing Web bubble that could burst anytime now causing a spiral of another global recession.

Why Instagram?

Apple named Instagram its best iPhone App of the Year for 2011. Instagram is also the 19th most downloaded free iPhone app of all-time. Instagram launched an Android app just last week.

Instagram currently has over 30 million users and a potentially huge crowd is coming it’s way in next few months, thanks to its recent expansion onto the Android platform. Instagram CEO Kevin Systrom says he thinks Instagram should easily reach 100 million users over next year.

“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 Advertisement more closely with the Instagram team to also offer the best experiences for sharing beautiful mobile photos with people based on your interests,” Facebook co-founder and CEO Mark Zuckerberg wrote Monday morning on his Timeline profile.

The Instagram founders, two Stanford grads who established their company in San Francisco less than two years ago, wrote Monday in a blog post that the deal was important in their effort to continue to grow and evolve the photo-sharing app.

The sale is expected to close later this quarter, and will bring the nine-person staff of Instagram to the social network. Zuckerberg went on to say that the company will be building on Instagram’s strengths and features and growing the app independently rather than “just trying to integrate everything into Facebook.”

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This is the first time Facebook has acquired a company or product with so many users. “We don’t plan on doing many more of these, if any at all.” Zuckerberg said. “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.”

The moves come ahead of Facebook’s planned flotation later this year. The firm reportedly plans to issue $5bn worth of stock on the New York-based Nasdaq exchange.

Instagram has “a formula; they figured out how to build this passionate commuity around photos, and they were mobile first. Those are two areas that Facebook could use some help with,” IDC analyst Michael Fauscette.

But if you would ask us, right now this is just an event. What it means for social and photo sharing is yet to be seen further down the road. But $1 billion? Really?

Considering the fact that Instagram is yet to decide a monetary road-map as to how to monetize it’s huge user base, at least for now, Facebook isn’t going to earn a dollar from this acquisition. We hope Facebook isn’t getting distracted by hipster buzz or the photo-sharing bubble, especially at a time when its business decisions need to be as sound as possible to shore up future investor confidence when they announce their IPO.