Instagram Deal Sharpens Facebook's Mobile Focus

Instagram-

Aiming to remain a key hub for sharing photos, Facebook acquired mobile photo application Instagram for $1 billion in cash and stock. The transaction -- Facebook’s largest to date -- also underscores the company’s efforts to bolster its mobile offerings.

Instagram will continue to operate as an independent business under the same name. Facebook CEO Mark Zuckerberg said in a post that the acquisition would enhance the ability of Facebook users to upload and exchange photos among family and friends.

“We need to be mindful about keeping and building on Instagram’s strengths and features rather than just trying to integrate everything into Facebook,” wrote Zuckerberg. “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.”

Launched in October 2010, the Instagram app now has more than 30 million registered users.

Last week, the company extended the service to Android phones after becoming one of the most popular and best-rated apps on the iPhone. Zuckerberg called the deal an “important milestone” for the company; it’s never before acquired a product with as many users as Instagram.

He also suggested that Facebook will not be pursuing many more deals of this scale in the future. Previously, the social network made smaller acquisitions including startups, such as FriendFeed, Hot Potato, Rel8tion and Snaptu. Often these deals were designed to pick up engineering talent or technology rather than a well-known consumer brand like Instagram.

Given its rapid growth, Instagram is one of the only recent startups that represented a credible threat to a core element of the Facebook experience: photo-sharing. The acquisition not only removes a competitor but better positions the company for the expansion of social networking to mobile devices.

Facebook's 845 million users include more than 400 million mobile users. And the latest data from comScore shows that more than a third (36.1%) of U.S. mobile users access a blog or social network on their phones.

The deal comes as Facebook prepares for an IPO to raise up to $5 billion, which would make it the largest Internet offering to date. The IPO expected this spring would value Facebook at between an estimated $80 billion to $100 billion. The Instagram acquisition could make Facebook even more attractive to already eager investors.

For its part, Instagram raised $40 million last month at a reported valuation of $500 million, despite having no business model. In his own blog post Monday, Instagram CEO Kevin Systrom reiterated that the company isn’t going away like prior Facebook acquisitions.

“We’ll be working with Facebook to evolve Instagram and build the network. We’ll continue to add new features to the product and find new ways to create a better mobile photo experience,” he wrote. At the same time, Zuckerberg said Facebook also plans to keep existing Instagram features, like the ability to post to other social networks.

Inside Facebook reported that Instagram has been working on a version of its app for Facebook’s new Timeline feature. The app built with Facebook’s Open Graph platform would allow users to automatically post photos they had taken. Brands could also tie Instagram into their own apps on Facebook.

“The biggest benefit will be to highly experiential brands like Nike and Red Bull -- their brands are at the heart of life in-the-moment worth capturing,” said Dave Marsey, senior vice president and media practice lead at Digitas. “Uniting Instagram with the Timeline, for example, creates a more real, engaging experience.”

To that end, Vitrue last week added a feature to its social media marketing platform that lets brands build Instagram functionality into their Facebook pages. But Facebook clearly trumped that move with its Instagram acquisition. 

Tags: apps, facebook, m&a, mobile
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