Facebook is aiming to impress ahead of its initial public offering by making a $1 billion move to purchase Instagram, the photo-editing and sharing service.
This goes down as Facebook’s largest acquisition to date and occurs ahead of one of the largest initial public offerings in United States history. Instagram should help the social networking giant’s value rise even higher, giving it yet another nudge as it veers into its IPO.
Many are comparing this acquisition to Google’s acquisition of YouTube and, to a lesser extent, MySpace’s acquisition of PhotoBucket.
Instagram has just 13 employees and is a relatively new startup, but it is also has virtually no business model to speak of and isn’t a revenue generator by any means. What it does, however, is steal large pieces of the social mobile pie. When Instagram recently debuted on Android devices, it commenced adding one million users in its first 12 hours of operation. On iOS, it has a user base of nearly 30 million. Those are big, big numbers and Facebook wants in on the action.
Facebook CEO and founder Mark Zuckerberg made the announcement in a post and stated desires for Instagram to remain independent under his company’s watchful eye.
“For years, we’ve focused on building the best experience for sharing photos with your friends and family. 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,” he wrote. “We believe these are different experiences that complement each other. But in order to do this well, we need to be mindful about keeping and building on Instagram’s strengths and features rather than just trying to integrate everything into Facebook. 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.”
Instagram is apparently going through another round of funding that values it in the $500 million ballpark.
“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. We don’t plan on doing many more of these, if any at all. But 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,” wrote Zuckerberg.
Instagram CEO Kevin Systrom owns 40 percent of the company and stands to benefit significantly from this deal. He’ll take home $400 million, while co-founder Mike Krieger should snag a tasty $100 million for his 10 percent stake. Benchmark Capital, the company that backed Instagram during its first round of funding, will net $180 million for its 18 percent share in the company. And investment firms Andreessen Horowitz and Baseline Ventures own 10 percent each, which also puts them in line for $100 million. A pool worth nearly $100 million will be divided up between the company’s employees.