Facebook has announced that it is buying the mobile photo-sharing app Instagram for $1 billion dollars.  And while the amount of money Facebook is dishing out has been making headlines, we’re wondering why the social network would pay so much money for a company that reportedly hasn’t turned a profit yet.

Facebook buys Instagram

Founded in October 2010, Instagram was originally launched as an iPhone app designed to let people share photos using their mobiles.  The app currently has over 30 million users (a mere drop in the bucket compared to Facebook’s 850 million) and they share 5 million photos a day. Part of Instagram’s popularity stems from the fact that users can share images to different social networks, including Facebook, Twitter and Tumblr, and that special filters can be applied to photos in order to change their look and feel.

Last week Instagram announced a new Android version, and since then it has been gaining 1 million users a day.  So what is this free mobile app worth? Well, according to Bloomberg News, just about $500 million, so why did Facebook pay twice that amount?

While Facebook hasn’t explained the reason behind this acquisition, here are a few possible suggestions:

• In its IPO filing, Facebook admitted that its mobile services aren’t what they should be and that so far it has not been a lucrative venture for them.  So one theory suggests that perhaps Instagram would help get Facebook’s mobile services up to speed.

• In June 2011, Facebook was reportedly working on a standalone photo-sharing app, however that was never released.  Some think Facebook couldn’t provide a better app, so it bought Instagram instead.

• Others think that Facebook acquired Instagram in an effort to stay ahead of its competitors.  Since both Google and Apple could have benefited from the app, and with the rise of photo-sharing social network Pinterest, Facebook may have been trying to keep competitors at bay before its IPO floats later this year.

• The acquisition may have been part of Facebook’s efforts to enhance Timeline since it has big expectations for this new layout.  Will Instagram encourage even more people to upload their photos onto Timeline?

The acquisition was made surprisingly fast and interestingly, this is the first time Facebook has made such a large purchase with a company that has this many users.  So whatever its reasons Facebook clearly wanted Instagram.

Instagram users, on the other hand are not so keen on the new deal, and many feel like their independent start up has gone corporate.  While Facebook and Instagram executives insist that Instagram will keep going independently, past Facebook acquisitions, including Friendfeed, Drop.io and Beluga haven’t been so lucky.

Whatever Facebook’s reasons were, this will be an interesting story to follow so keep checking out blog for any updates. What are your thoughts on the purchase? Leave your ideas in the comments section below.

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