Why Facebook Paid a Billion Dollars for Instagram

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San Francisco based Internet startup Instagram has almost no revenue for itself, yet Mark Zuckerberg, in all his entrepreneurial wisdom, saw fit to buy the company for a billion dollars.

Instagram, as you may know, is a mobile application that allows users to add fun and quirky effects to photographs and share them with friends. Although there is nothing pathbreaking in what it does, Instagram commands tremendous loyalty from its user base of an impressive 30 million. However, that's not the only reason Zuckerberg bought out the company. Here are some other possible reasons -

The history

Zuckerberg had his eye on Instagram before it was even founded. He had invited Harvard graduate Kevin Systrom to join him after the latter had created Photobox, a service that allowed users to send large files to each other. Systrom had demurred at that point, and went on to found Instagram along with Mike Kreiger. Mostly, the duo worked with two other engineers in South Park neighbourhood in San Francisco, an area that had once been the office of Twitter.

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Access to photo sharing

Commenting on the deal, Zuckerberg wrote this on his Facebook (where else?) page, “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. 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.”

Access to mobiles

The biggest reason for the buyout however would be the reach Facebook will acquire on mobile devices through Instagram. In India, too, the photo sharing service is quite popular and the explosion of smartphones around the world will ensure that Facebook will find viable ways and means of recovering its billion dollars over a period of time.

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IPO

Facebook is set to be listed on the stock exchange as early as next month via an IPO and with an estimated addition of $100 billion to its revenues through its shares coming in. To Zuckerberg, a billion dollars would be like a big bank spending a million dollars on a useful application that has a proven track record within two years of its launch.

To keep Google away

Last year's biggest deal was Google acquiring Motorola's patents that included a number of photo application softwares. Google has since also worked to revamp its own social networking site Google Plus with a renewed zeal. Through this deal, Facebook will pre-empt Google from making any big ticket announcements this close to its IPO and stealing its thunder. In the long run, Instagram's engineers will also be made to integrate their company's profile with the widest social networking site on the planet, leveraging the power of social photos to increase Facebook's dominance.

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Not everyday does a really small startup come into a billion dollars. The challenge for both companies now is to stay true to their core ideologies while working together to create a unique value offering for customers of both companies. And knowing Zuckerberg, something spectacular may just be around the corner. (Technology, MensXP.com)

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