Facebook Buying Instagram for $1 Billion

AP and Reuters with

Facebook is spending $1 billion to buy the photo-sharing company Instagram in the social network's largest acquisition ever.

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Instagram lets people apply filters to photos they snap with their mobile devices and share them with friends and strangers. Some of the filters make the photos look as if they've been taken in the 1970s or on Polaroid cameras.

"This is an important milestone for Facebook because it's the first time we've ever acquired a product and company with so many users," CEO Mark Zuckerberg wrote on his Facebook page. "We don't plan on doing many more of these, if any at all."

Facebook said it plans to keep Instagram running independently. That's a departure from its tendency to buy small startups and integrate the technology — or shut them down altogether just so it can hire talented engineers and developers.

"We think the fact that Instagram is connected to other services beyond Facebook is an important part of the experience," Zuckerberg wrote. "We plan on keeping features like the ability to post to other social networks, the ability to not share your Instagrams on Facebook if you want, and the ability to have followers and follow people separately from your friends on Facebook."

Bo Brustkern, a co-founder of Arcstone Partners, told CNBC that he loved the pick-up and that it was similar to Zynga's purchase of OMGPOPbut better.

"I believe Facebook’s acquisition is playing offense whereas Zynga’s was playing defense," he wrote in an email. "To me, that’s the difference between having a true platform (Facebook) and simply a ton of users (Zynga). Said differently, Facebook can leverage Instagram in ways that far outpace what Zynga can do with OMGPOP."

Facebook is paying cash and stock for San Francisco-based Instagram and hiring its roughly 10 employees. The deal is expected to close in 30 days, according to a source.

Although Lou Kerner, The Social Internet Fund's founder, called the deal's valuation "astronomical," he said "the valuation may not look so rich down the line." Buying Instagram also keeps the company "out of the hand of competitors," he added.

The deal follows several other instances of talent acquisition or "acqui-hire" by Facebook. In December, the company bought the location sharing service Gowalla before closing its doors a few months later in March. Other such acqui-hires include Strobe, a mobile app firm, and, a file-sharing service.

Menlo Park, Calif.-based Facebook is expected to complete its initial public offering of stock next month, after the Instagram deal is closed.

Getting Instagram is a big win for Facebook as it works to harness people's growing obsession with their mobile devices and sharing every moment of their life. Instagram was only available on Apple devices until recently. An app for Android devices was released last week.

Instagram application has gained about 30 million users since it first launched in January 2011.

Despite a loyal and active following, Instagram lacks any significant revenue sources. The start-up reportedly closed a $50 million funding round last week from investors including Sequoia Capital that valued the company at $500 million, according to the technology blog

The deal, a closely kept secret at the tiny start-up, is expected to close this quarter. CEO Kevin Systrom announced the transaction to Instagram employees at a 9 a.m. meeting on Monday, according to a source inside the company.

Shares in Shutterfly , a publicly traded Internet photo company, declined by 4 percent to close at $28.21 following news of the Instagram deal.

—Kayla Tausche and Jesse Bergman contributed to this report.