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Zuckerberg: We've agreed to buy Instagram

April 10, 2012 1:19am

Tags: Facebook
(Updated 5:10 a.m.) Facebook creator Mark Zuckerberg revealed early Tuesday morning that the social network he created will acquire the photo sharing app Instagram and the team behind it.

A Reuters report said the acquisition is worth $1 billion in cash and stock.

The deal is expected to close later this quarter. The popular Instagram application, which allows users to add filters and effects to pictures taken on their smartphones, has gained about 30 million users since it first launched in January 2011.

Despite a loyal and active following, Instagram lacks any significant revenue sources. The start-up, with roughly a dozen employees based in San Francisco, reportedly closed a $50 million funding round last week from investors including Sequoia Capital that valued the company at $500 million, according to the technology blog AllThingsD.com.

The acquisition comes as a surprise as the world's largest social network nears an initial public offering. Facebook will acquire Instagram's entire team as part of the deal.

"I'm excited to share the news that we've agreed to acquire Instagram and that their talented team will be joining Facebook," Zuckerberg said in a post on the timeline of his own Facebook account.

"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," 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," he also said.

The Facebook creator explained that his company is "mindful about keeping and building on Instagram's strengths and features rather than just trying to integrate everything into Facebook."

"That's why we're committed to building and growing Instagram independently. Millions of people around the world love the Instagram app and the brand associated with it, and our goal is to help spread this app and brand to even more people," Zuckerberg said.

The Instagram perspective

Instagram is the brainchild of Kevin Systrom and Mike Krieger, who are both Stanford University graduates. Systrom interned at Odeo, the forerunner of Twitter while Krieger interned at Microsoft and worked at Meebo and at Foxmarks, the precursor of software developer Xmarks.

Their inspiration for Instagram came from the thought of combining the concept of instant photos of Polaroid and communication via telegram.

Instagram CEO Systrom announced the transaction to his employees at a 9 a.m. meeting on Monday in San Francisco, according to a source inside the company.

The price was stunning for an apps-maker without any significant revenue, even with soaring startup valuations in Silicon Valley, as Facebook sought to absorb a potential rival or at least prevent it from falling into the hands of a major competitor like Twitter or Google.

As Instagram's popularity has shot up in recent months, the company's leadership has mulled possible strategies to expand the service into a fully featured social network - much like a photo-driven, stripped-down version of Facebook, Twitter, or even Path, a company insider said.

Instagram is "a property that would have been amazingly valuable to not just Facebook, certainly Twitter was in the hunt as well," said Lou Kerner, founder of the Social Internet Fund.

"I'm sure Google was interested as well. So to some degree an acquisition like this is both offensive and defensive. It would be a highly leveragable asset for anybody who wanted to compete against Facebook."

The acquisition marks an exception in strategy for Facebook, which has traditionally bought small companies as a means of hiring coveted teams of engineers. Facebook typically discontinues the acquired company's products or builds similar versions that it integrates into its service.

Instagram, however, will not only remain running, but Facebook will build features into it as time goes by, both companies said. - with Reuters/ELR, GMA News

Tags: Facebook



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