Facebook buys Instagram for $US1 billion - a Kiwi entrepreneur's take

A New Zealand entrepreneur gives his spin on the acquisition, and the new internet bubble.

Mark Zuckeberg has used his Facebook account to announce his company has agreed to acquire Instagram for $US1 billion in cash and shares (a price confirmed by a Facebook statement).

Instagram is the maker of a wildly popular mobile photo sharing app, known for its retro effects that make iPhone and Android snaps look like aging Polaroids - a gimmick that's helped distinguish it from countless other mobile photo-sharing apps.

Assuming it gains regulatory approval, it will be Facebook's largest acquisition to date.

Notably, Mr Zuckerberg immediately pledged not to undermine one of Instagram's key features - the ability to post pics to Twitter, a Facebook rival.

Instagram also lets people post photos directly to the blogging service Tumblr.

"We think the fact that Instagram is connected to other services beyond Facebook is an important part of the experience. We plan on keeping features like the ability to post to other social networks," blogged Mr Zuckerberg.

On March 12, it was reported that there were around 27 million users of Instagram's iPhone app (an Android version of the app has just been released).

According to its website, the company was founded two years ago with $US7.5 million in venture capital funding.

It currently draws no revenue, but says it may introduce charges for some special effects in future.

New Zealand entrepreneur Derek Handley - who sold the mobile company he co-founded to US media giant Meredith (from which he quietly departed earlier this year) - was quick to quip that Instagram's most recently reported headcount - 13 - means the $US1 billion sale works out to $US76.9 million per employee.

"In terms of a revenue multiple it gives "E" on my calculator because Instagram's revenue is currently circle, i.e. $0," Mr Handley added.

"If this is a bubble, I don't see it stopping any time soon. A couple of weeks ago Zynga bought a two-month-old company [OMGPOP - maker of the viral hit Draw Something] for $180 million  - but that company had sold over 30 million downloads [at 99 cents each] in six weeks. It has taken some of our star New Zealand companies 30 years to get to $30 million in revenue," Mr Handley told NBR.

"Today, the rate at which a company can grow if it is a hit is just beyond what we can comprehend. And it is way beyond what it was 12 months ago, let alone 24 months ago. It's moving too fast.

"To wit: Pinterest is now the third largest social network in the world - after Twitter and Facebook. I'm sure most Kiwi readers are probably thinking: Pin-who? Fair enough, it only got traction last October." (Read NBR's guide to Pinterest here).

Instagram investors include Andreessen Horowitz, co-founded by Netscape alumni Marc Andreessen, which recently had a big payday as one of Skype's owners before its sale to Microsoft.

Facebook is due to go public later this year.