Facebook Acquires Instagram for $1 Billion

Own a social networking service that has a lot of users but generates no revenue? Some might think that there’d be little hope in a sale, but Facebook’s most recent purchase proves that the unlikely can happen. The company just paid a cool $1 billion for photo sharing / editing service Instagram, a deal that has many scratching their heads. Despite the huge purchase price, Facebook is planning on keeping Instagram separate, remaining as a standalone app.

Spending $1 billion on a service that generates little or no revenue might seem a bit strange, but this seems to be a case of spending money to save money in the long-run. Instagram has over 27 million users on iOS alone, so that’s a huge market. By purchasing Instagram, Facebook has effectively kept the potential the service offers out of the hands of others. Plus, Facebook had already been contemplating building a similar product, so two birds were killed with $1 billion here.

What this deal calls out to me most is the fact that there is still a huge market for start-ups. A good idea, no matter how simple, might hold massive value for companies like Facebook. There exists a market where start-ups are created just to be acquired, and it’s no surprise when companies like Facebook and Google exist. It’s a lot easier for companies such as those to out-right purchase another company and save themselves the legwork.

Even so – $1 billion for this particular service is mind-blowing.