Post date: Apr 10, 2012 10:49:44 AM
PALO ALTO, CALIFORNIA, UNITED STATES (NBC) - Facebook will pay $1 billion in cash and stock for Instagram, a 2-year-old photo-sharing application developer, in its largest-ever acquisition just months before the number 1 social media website is expected to go public.
Facebook to buy Instagram for $1 billion in cash and stock.
The price was stunning for an apps-maker without any significant revenue, even with soaring start-up 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.
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.
The Instagram application, which allows users to add filters and effects to pictures taken on their iPhone and Android devices and to share those photos with their friends, has gained about 30 million users since it launched in January 2011.
Instagram, with roughly a dozen employees based in San Francisco, was reportedly in the process of wrapping up a $50 million funding round last week from investors including Sequoia Capital, according to the technology blog AllThingsD.com. The funding valued the company, founded in early 2010, at $500 million, it said.
Facebook, which is expected to raise $5 billion via the largest Silicon Valley initial public offering by May, will acquire Instagram's entire team.
"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," Facebook CEO Mark Zuckerberg said in a blog post.
"We don't plan on doing many more of these, if any at all," he added.
The deal, a closely kept secret at the tiny start-up, is expected to close this quarter. CEO Kevin Systrom announced the transaction to Instagram employees at a 9 a.m. meeting on Monday, according to the source inside Instagram.