Facebook, the world’s largest social network, said it had agreed to buy Instagram,
the popular mobile-centric photo-sharing service, for $1 billion in
cash and stock, giving it a stronger foothold on mobile devices. It
would be Facebook’s largest acquisition to date by far.“For
years, we’ve focused on building the best experience for sharing photos
with your friends and family,” Facebook’s chief executive, Mark
Zuckerberg, wrote on his Facebook page.
“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.”Instagram is a social network built around cellphone photos.
It lets people add quirky filters and effects to their snapshots and
share them with friends, who can “like” and comment on them. The service
has been something of a rising star in the start-up world. Barely two
years old, it has attracted close to 30 million users, even though it
worked only on iPhones until last week, when it released an Android version of its app.Despite
Instagram’s tremendous traction — more than 5 million photos are
uploaded each day — the company, which is based in San Francisco, is
still tiny. For much of its existence it has had fewer than seven
employees, and it only recently topped 10. By way of comparison,
Foursquare, another cellphone-focused social network, has nearly 100
employees serving 15 million users.Facebook has been interested
in Instagram for some time. In early 2011, Mr. Zuckerberg reached out to
Instagram to discuss possibly purchasing the company, but Mr. Systrom
chose to keep it independent and focus on expanding it, two Facebook
engineers who asked not to be named said in August. At the time Instagram had less than 7 million users.Though
Facebook has tended to write much smaller checks in the past,
Instagram’s surging momentum likely compelled it to make a
billion-dollar deal. Last week, Instagram closed a $50 million financing
round with several prominent investors, including Sequoia Capital, an
early backer of Google; Thrive Capital, the firm run by Joshua Kushner;
and Greylock Capital, an early investor of LinkedIn. The round valued
the photo service at about $500 million, according to one person with
knowledge of the matter, who requested anonymity because the discussions
were private. With Facebook’s purchase, one week later, that investment
has now doubled in value. The technology blog AllThingsD reported earlier that Sequoia was in the process of leading a $50 million round of investment in Instagram.Previously,
the company raised $7.5 million from Baseline Ventures and Andreessen
Horowitz, as well as contributions from angel investors Jack Dorsey and
Chris Sacca.Rebecca Lieb, an analyst at the Altimeter Group,
described the Instagram acquisition as central to one of Facebook’s most
urgent needs: how to make its service more appealing on smartphones.“It’s
easier to update Facebook when you’re on the go with a snapshot rather
than with text,” Ms. Lieb said. “I think it’s definitely a mobile play.”As more and more people log onto Facebook using mobile devices, Facebook is faced with the challenge of figuring out new ways to make money
from the small screens. “We really don’t know how Facebook will
monetize mobile platforms,” Ms. Lieb said. “The first step is to make
Facebook friendlier on mobile devices, and this will certainly do that.”
Some Instagram fans quickly expressed concern about the fate of the
service, since it is not uncommon for Facebook to buy a small start-up
and then shut down its service, as was the case with FriendFeed, Hot
Potato and most recently Gowalla, a location-based app. One such user,
Giovanni Gallucci, said on Mr. Zuckerberg’s page: “I assume it’ll see
the same fate as Gowalla. Oh well — it was fun while it lasted.”But Mr. Zuckerberg said that Facebook planned to keep Instagram up and running as a separate service for the time being.

“We
think the fact that Instagram is connected to other services beyond
Facebook is an important part of the experience,” he wrote. “We plan on
keeping features like the ability to post to other social networks, the
ability to not share your Instagrams on Facebook if you want, and the
ability to have followers and follow people separately from your friends
on Facebook.”Kevin Systrom, chief executive of Instagram, echoed that in a blog post
on his company’s site. “It’s important to be clear that Instagram is
not going away,” he said. “We’ll be working with Facebook to evolve
Instagram and build the network.”