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Facebook Buys Instagram for $1,000,000,000 – But Why?

Posted on Monday, April 9th, 2012 in Uncategorized by Felica Grenda

Mark Zuckerberg is one step closer to dominating the social networking world with the last deal he made, having bought the rights for Instagram (a mobile app that lets teenage girls all around America think they’re photographers). Zuckerberg recently released a statement through Facebook, saying

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.

which basically translates to “Hey, we might not do this again, but since Instagram is so popular and their pictures are used on Facebook, we’re buying them out!”

Instagram is a popular application on the iPhone. It allows putting basic filters on images to make it stand out from a regular picture. They’re now on the Android market too, having just released their Android app last week.

Here’s the weird part, though. Facebook bought Instagram for $1 billion. Instagram is an app that doesn’t make any money. It wasn’t focused on making revenue, either. In response to user’s curiosity, Instagram’s CEO Kevin Systron said

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.

People are suggesting Facebook buying Instagram was a defensive move. They have the money to throw around, they’ll welcome more users in a heartbeat, and it blocks off Flickr (or more specifically, Yahoo) from a major financial move. Facebook buying Instagram is basically the same strategical move Google made when they bought YouTube.

Here’s the fun math part: Facebook paid $1 billion for 30 million users who pay nothing to use the application. Which puts it at about Facebook buying each user for about $33. Facebook’s market cap is about $100 billion dollars with 850 million users, putting each account at about $117. In real money this doesn’t make much sense, especially with stocks and what not, but Facebook basically bought a whole bunch of users for less than 1/3 of what they’d be worth to them. Good move, right? No? I don’t really know either.

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