Why Wait for an IPO - Facebook Buys Instagram for $1 Billion

Why Wait for an IPO - Facebook Buys Instagram for $1 Billion

posted Monday Apr 9, 2012 by Scott Ertz

Why Wait for an IPO - Facebook Buys Instagram for $1 Billion

It's been a long time since an Internet conglomerate purchasing a fast-growing start-up for way above its valuation has caught the world's attention. In fact, the last time it happened was Google purchasing YouTube in 2006. That is why today's announcement that Facebook has purchased photo sharing service Instagram for a cool $1 billion is such a shocker.

Like YouTube, Instagram has only been around about 2 years and gained popularity rapidly and surprisingly. While YouTube got to where it is because of a single upload of the comedic music video for Lazy Sunday from Saturday Night Live, Instagram has grown in popularity because of the viral nature of the product itself. Every time someone shares a photo through the service, it is incredibly branded, advertising itself to everyone who sees it. This has helped build the business incredibly fast.

Now, when I say business, I use the term loosely. Like Twitter, who they currently integrate with for photo sharing, there seems to be no business model. The app is free, the service is free but the servers that power it are not. The only business model available to them was an acquisition by an existing company. Now enters Facebook.

Why would Facebook want Instagram as part of their family and why make the purchase now, just ahead of their IPO? Hit the break to find out.

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