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Photo-Sharing Land Grab

Tuesday, 10 Apr 2012 | 11:13 AM ET
Instagram
Getty Images
Instagram

Facebook’s $1 billion acquisition of Instagram is part of a land grab for mobile Internet users—and with the explosion of smart phones, that land grab is all about photo sharing.

How times have changed since Yahoo bought Flickr for $35 million back in 2005. Thanks to the fact that virtually everyone carries a camera in their pockets, photo sharing is the new way people communicate. And with Internet giants fighting to own the space where users spend their time, valuations are going through the roof.

Why did Facebook shell out $1 billion for Instagram?

It wants to keep Instagram’s 30 million iPhone and 1 million plus Android users from leaving its platform. And perhaps more importantly, it wants to keep mobile users from leaving for Google and Apple . Wedbush Securities Managing Director Michael Pachter says “It’s clear that Instagram’s technology is superior and its growth posted both a threat and an opportunity to Facebook.”

So who else is playing in this photo-sharing land grab?

Just this morning Autodesk announced a partnership with Photobucket, which calls itself “the world’s leading dedicated photo and video sharing service with over 100 million registered users. Now Photobucket users will be able to use Pilxr photo editing tools, to both correct photos and personalize them with the kind of effects, overlays and borders Instagram offers.

Snap! Facebook Acquires Instagram
CNBC's Julia Boorstin has details on Facebook's $1billion cash and stock acquisition of photo-sharing app, Instagram.

Meanwhile Shutterfly has agreed to buy Kodak’s online photo servicesfor $23.8 million. Kodak Gallery, which allows users to store, share, and print images, has more than 75 million users. It’s most direct competitor is Snapfish, which is owned by HP , and boasts more than 90 million members in over 20 countries.

And then there’s Google, which owns Picassa and social sharing service Google Plus. Wedbush’s Pachter says: “There was the potential for Google to buy Instagram and make its app work only with Google+, which would have had the potential to steal 30 million customers away from Facebook. Buying Instagram ensured that all 30 million (or whatever portion were already Facebook users) remained faithful, and allows Facebook to integrate Instagram and offer it to its other 800 million users.” And don’t forget about Apple’s iPhoto, which allows users to view and share photos. Instagram’s user-base is mostly iPhone users—more than 30 million of them.

So what’s the next Instagram?

The next $1 billion acquisition is likely to also be about sharing. Private company expert Lou Kerner says “as new mobile and social companies gain rapid traction, we are still in the early stages of land grabs.” Investors should keep an eye on Tumblr, which is second only to Facebook in terms of the amount of time spent using the service. The personal blogging site has topped 20 billion posts on 50 million blogs, with more than 21 million unique visitors in February. Tumblr’s users skew younger, and buzz in Silicon Valley is that teenagers are spending more time on Tumblr and less on Facebook. Another potential acquisition? Pinterest, which grew to 10 million users faster than any other website, and is estimated to have topped 20 million monthly unique users in March.

Who are potential buyers?

Google, Microsoft and Apple all have plenty of cash. And while Facebook will have plenty of cash after its IPO, CEO Mark Zuckerbergsays he doesn’t plan many more acquisitions of this size. One thing’s for sure. Instagram’s sky high valuation – remember it doesn’t have any business model—raises expected price tags in the startup space.

Questions? Comments? MediaMoney@cnbc.com

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  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.