Facebook acquires Instagram photo sharing app for $1B

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Facebook has acquired photo-sharing application Instagram for $1 billion, the largest deal in the social networking giant's eight-year history.

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Facebook has acquired photo-sharing application Instagram for $1 billion.

The free Instagram app, first introduced in October 2010 for Apple's (NASDAQ:AAPL) iOS platform, enables users to snap, filter and manipulate photos, upload their work to Facebook, Twitter, Tumblr and foursquare, and post likes and comments. More than 30 million registered Instagram users on iOS upload more than 5 million photos every day. Earlier this month, Instagram launched on Google's (NASDAQ:GOOG) Android operating system, generating more than a million downloads in fewer than 24 hours.

Facebook co-founder and CEO Mark Zuckerberg confirmed the Instagram acquisition on his Facebook timeline. "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," Zuckerberg said. "We don't plan on doing many more of these, if any at all."

While Facebook has shuttered previous mobile acquisitions like location-based service Gowalla, Instagram will continue as a standalone app. "The Instagram app will still be the same one you know and love," Instagram CEO Kevin Systrom wrote on the company's blog. "It's important to be clear that Instagram is not going away. 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 photos experience."

Instagram raised $40 million in financing just last month, bringing total funding to date to $47 million and vaulting the company's valuation to as much as $500 million--roughly 20 times what it was worth just a year ago. During a subsequent appearance at Federated Media's Signal conference, Systrom suggested Instagram is preparing to roll out advertising services, a move to answer investor questions about how the company will build a sustainable revenue model around the free app. It is unknown how or if Facebook will choose to monetize Instagram moving forward.

Facebook is slated to go public this spring and is in the process of expanding its advertising efforts to the mobile platform as it strives to create new revenue streams. Facebook now integrates Sponsored Stories--posts from friends or Pages on Facebook that a business, organization or individual has paid to highlight--directly into the user's mobile News Feed. Facebook also features advertisements on the log-out page. In addition, the company is launching Offers, enabling businesses to share discounts and promotions directly from their Facebook page. Consumers may redeem Offers via email or on a mobile device.

Facebook plans to raise $5 billion with its initial public offering. Its IPO filing acknowledges the company's struggles to monetize its popular mobile services: "We currently do not show ads or directly generate any meaningful revenue from users accessing Facebook through our mobile products, but we believe that we may have potential future monetization opportunities such as the inclusion of sponsored stories in users' mobile News Feeds," Facebook wrote. Trading of Facebook stock on private exchanges points to a valuation around $80 billion; last year, the firm reported revenues of $3.7 billion, driven by online advertising and sales of virtual goods.

Facebook users worldwide now exceed 850 million, with more than 425 million active on mobile devices.

For more:
- read this Fortune article

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