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Summary:

Facebook’s stunning $1 billion acquisition of Instagram appears to be the largest deal ever for a company built entirely around a single mobile app experience, either proving that the mobile app business has truly arrived or that there’s a new bubble in town.

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Facebook’s stunning $1 billion acquisition of Instagram appears to be the largest deal ever for a company built entirely around a single mobile app experience, either proving that the mobile app business has truly arrived or that there’s a new bubble in town.

Instagram has less than 20 employees and no viable business model, but it has 27 million iPhone users and launched perhaps the most anticipated Android app ever last week. Its photo-sharing app is perhaps one of the best examples of the mobile app revolution: easy-to-use social-media software that takes advantage of sophisticated cameras in powerful handheld computers linked to fast Internet connections.

Few other mobile app deals have even approached the lofty heights enjoyed by Instagram and its investors. Zynga bought OMGPOP last month for a reported $210 million largely due to one mobile app: Draw Something. Apple paid around the same amount for Siri, the personal assistant app at the heart of the iPhone 4S. Google bought AdMob for $750 million, but that’s an advertising network built around many mobile apps, as opposed to a company designed around a single mobile service.

Instagram is a free app with no advertising. In an FAQ posted on its site, company founders Kevin Systrom and Mike Krieger said:

We believe that the core of our product will always be free. There will be opportunities for consumers to buy extra add-ons like special filters, etc. However, we plan to experiment with different models as we grow and learn what special value we can provide to the community to make their collective experience more engaging, exciting and useful.

That’s pretty vague even by the standards of the startup world.

Other mobile app companies have to be excited: namely Rovio (which is profitable), Path (which is getting buzz and gaining users), Pinterest (the hot new social network du jour), and Square (which wants to move past the card-reader dongle and focus on its mobile payments app). Instagram is more than just an app — it’s a social network unto itself — but it’s nothing without the app, and lots of Instagram users also post their photos on much-larger social networks like Facebook and Twitter.

The willingness of companies like Facebook — which is about to take center stage as one of the biggest players in technology — to pay jaw-dropping amounts of money for a mobile app with no business model proves that the mobile apps sector has truly arrived. (Om has more on that here.) The competition is fierce, but Instagram has shown a new generation of entrepreneurs that it’s possible to build a huge following around a relatively simple mobile app and get quite rich in the process.

If you can think of a bigger deal for a company built entirely around a mobile app, let us know. At the moment, it appears Instagram has set a new high-water mark in technology deals.

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  1. Thomas Baekdal Monday, April 9, 2012

    Good article… but I think “The willingness of companies like Facebook to pay jaw-dropping amounts of money for a mobile app with no business model proves that the mobile apps sector has truly arrived” …shows that we have a social bubble more than anything else.

  2. Bubbly Wobbly Bubble.
    And them doing it before going on the market soon, is a bad idea in my opinion. Just shows how inaccurate the whole Facebook estimation is.
    When it blows it is going to leave a red mark on our investment.

  3. Instagram is more of a social network or a platform. Facebook is available as an app, but we wouldn’t classify as such. As Om said, Facebook bought Instragram before it became a real competitor. Even worse, it could have been bought and integrated into a competing social network (Google).

    I am sure that Facebook knows it overpaid based on current market value. But Instagram is a big round peg for a round hole in Facebook’s product offering. If it became too successful or ended up n the wrong hands, it could have been more expensive for Facebook.

  4. mobile technology is completely changing the way people search for the information.

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