Tuesday, April 10, 2012

Facebook buys Instagram for $1 billion

Photo caption: Instagram founders Mike Krieger, left, and Kevin Systrom.

The Wall Street Journal reports: In October 2010, Stanford University graduates Kevin Systrom and Mike Krieger launched a new iPhone application, Instagram, yet another oddly named tech start-up in a crowded field of hopefuls.

Yesterday, the two twenty-somethings said they sold their photo-sharing service—which has about a dozen employees and no revenue—to Facebook Inc. for $1 billion in cash and stock.

That 18-month journey underscores the frenzied state of the tech investing game, where even the smallest Web companies can develop global followings in a matter of weeks.

Only last week, Instagram closed a $50 million funding round from venture capital firms. The company's valuation: A whopping $500 million.

Incredibly, such a number would turn out to be paltry in the days ahead. Shortly after that deal, Facebook Chief Executive Mark Zuckerberg contacted Mr. Systrom, Instagram's 28-year-old CEO, to buy the company.

Mr. Systrom came up with the idea for Instagram and is the company's largest shareholder with about a 45% stake, said people familiar with the matter.

The acquisition came together over the weekend. "It was all Mark," said Steve Anderson, a founding partner of Baseline Ventures, one of the company's early investors. "It was CEO to CEO."

Buying Instagram improves Facebook's mobile offerings while removing a rival for users' attention. Instagram, with more than 30 million registered users, grew rapidly by helping people share photos, a fundamental reason people use Facebook.

The deal is the largest ever for Facebook, which people familiar with the matter say will sell shares to the public in May. The company in the past has paid millions of dollars for a series of small ventures, primarily in an effort to acquire talent.

Mr. Zuckerberg called the deal a "milestone" for his company. But, he said, "We don't plan on doing many more of these, if any at all."

Instagram is one of a cohort of young start-ups that have built products around the iPhone and have registered incredibly fast growth in a short period of time. The company bills its service as a fun and quirky way to share photos with friends. A user can snap a photo with an iPhone, then choose a filter to transform the look of the shot, say by giving it the look of an old Polaroid.

Users can share the photos with followers, where they can post comments and "Like" recommendations. Some people describe the app as a visual version of Twitter, where it is heavily used to share photos.

On March 11, Mr. Systrom gave a keynote talk at the South by Southwest conference in Austin and announced that Instagram's count of registered users had nearly doubled since December, rising to 27 million from 15 million. Last week, the company launched a version of its application that works on smartphones running Google Inc.'s GOOG -0.23%Android system and instantly added millions of users.

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