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The popular photo-sharing start-up Instagram was acquired yesterday by Facebook for, some say, an outrageous price.

The mobile app Instagram has been growing in popularity since its inception two years ago. While you may have seen iPhone users linking up their Twitter and Facebook accounts to share their Instagram photos, on April 3rd Instagram released an Android version of their app. In one day, one million people downloaded the app. Yesterday in a move that no one saw coming, Facebook dropped $1 billion USD and acquired Instagram and Instagram’s twelve employees.

facebook-buys-instagram

Facebook CEO Mark Zuckerberg published a post on Facebook’s official blog about the purchase and the company’s excitement to start working with Instagram. Some people say that this was a very smart move for Facebook and others are scoffing at the high price Facebook paid for the two-year-old startup that didn’t really have any revenue streams (no ads, no subscription fee for users).

The world’s largest social media network is making money hand over fist. Those supportive of the acquisition (or at least those who see it as a savvy business move) point out that as crazy as it sounds for us peasants who don’t make millions daily, $1 billion USD is a drop in the bucket for Facebook. Particularly, on a no-risk investment. Tens of millions of people are already using Instagram and loving it. Facebook is banking on the fact that if it doesn’t tweak the app too much, it’ll retain those users and perhaps entice some of the 845 million people already on Facebook to try it out as well.

Another point some are making is that Facebook’s main objective is to keep users on the site as long as possible. Right now, the social network’s mobile usage isn’t as high as you might expect. Buying a mobile app that keeps people logged in to post photos and logged in to view others’ photos may be the increase in mobile usage that makes a difference to Facebook’s bottom line.

The downside of the purchase is that already, hundreds of Instagram users are leaving the service due to Facebook’s known privacy issues. Consumers are concerned that while Instagram allowed them true control over their own content, Facebook will assert ownership and control over Instagram photos like the company does on its social network, i.e. Facebook can do whatever it wants with your photos once you upload them to the company servers (even if you delete your account or the photos themselves).

Furthermore, Instagram users are concerned that ads might crop up in photo feeds on the app. Another privacy concern is that for the vast majority of Instagram users, they leave their photos private because there is no personal data to trace back to them. By linking their Facebook profiles to their photo feeds, that anonymity is removed. Already, photo sharing sites and apps that offer to transfer your Instagram photos have seen a spike in traffic and new users.

One question mark surrounding Instagram’s actions is that just last week, the company finished a round of financing that was estimated to bring in $50 million USD. Analysts are skeptical as to why Instagram would continue a round of funding when many assume that Instagram and Facebook were probably already in discussions about the acquisition at the time of the funding round.

Some guess that Instagram was simply trying to drive up whatever offers were on the table. Others are hypothesizing that there were no talks between Facebook and Instagram at the time of the funding round, and that Facebook simply panicked when it saw the million Android downloads in one day. Facebook wondered if Instagram could really threaten Facebook’s current seat atop the Internet photo sharing niche and bought them, quickly, to hedge their bets.

However, acquisition itself was not far from the minds of the Instagram founders. Reports quote company representatives debating at the popular music and start-up/gadget festival SxSW about whether or not they would try to stay the course, or be bought out.

To read more about privacy concerns related to Facebook, check out our blog post about employers invading applicants’ social media privacy.