Instagram, an Internet startup in San Francisco, has no revenue and about a dozen employees. It has not yet celebrated its second birthday. But to Facebook it is already worth a billion dollars.
Facebook announced Monday that it would pay that much in cash and stock for Instagram, the latest big winner in an industry that seems to be more awash in money by the day.
Instagram joins other out-of-nowhere Internet hits like Groupon and YouTube. The acquisition, Facebook’s largest to date, could give it a stronger position on mobile devices.
Instagram is essentially a social network built around photography, offering mobile apps that let people add quirky effects to their smartphone snapshots and share them with friends.
It has dozens of competitors, but Instagram stands out for its fast ascension and almost cultlike following. It has 30 million users who upload more than 5 million photos a day, even though it was available for only Apple devices until last week, when the company released an Android app.
For Instagram’s founders, two Stanford graduates in their 20s who are now worth in the tens, if not hundreds, of millions of dollars, it has been a productive couple of years. The other big winners will be their early investors at venture capital firms.
"It’s the Web fairy tale that all startups dream of," said Melissa Parrish, an analyst with Forrester Research. "They took a simple behavior — sharing pictures with friends — and made it a utility that people want."
Kevin Systrom, who founded Instagram with Mike Krieger and is now its chief executive, has been on the radar of Mark Zuckerberg, Facebook’s founder, for some time. Systrom was a sophomore at Stanford in 2004 when he developed a service called Photobox that let people send large photo files to each other. The service caught the eye of Zuckerberg, who offered him a job. But Systrom decided to finish his studies and went on to found Burbn, which let people post photos and other updates.
Burbn never attracted more than a few hundred users, but they uploaded a lot of photos. So Systrom and his team stripped it down and released a sleeker version for the iPhone, Instagram. It gained early momentum because it allowed users to also post to Twitter.
For most of Instagram’s early days, the company consisted of just four employees, including its two founders. They worked in what had been the early offices of Twitter in the South Park neighborhood of San Francisco, crammed in with other startups.
The team sat in the middle of the room at four desks pushed together to make one large table — though none of the tables lined up quite right. This year, Instagram moved to a larger office across the street.
The company has been slow to build its team, and has only about 13 employees today. All are expected to share in a rich payday, and Systrom could walk away with $400 million.
For users the question is whether Instagram will retain its luster. Twitter lit up with complaints after the news broke Monday, with dozens of people saying they planned to un-install the app.
"I hope it doesn’t do anything to drain away the creative juices that made it such an innovative and exciting site," said Bex Finch, a San Francisco photographer who has more than 10,000 followers on Instagram.
In a blog post, Systrom sought to reassure Instagram users that the app would not be diminished. "The Instagram app will still be the same one you know and love," Systrom said. "You’ll still have all the same people you follow and that follow you. You’ll still be able to share to other social networks. And you’ll still have all the other features that make the app so fun and unique."
The company’s investors included Andreessen Horowitz, Baseline Ventures, Benchmark Capital and Greylock Capital.
Facebook is getting ready for its own big payday. It is aiming for a public offering as soon as next month that could value the company at about $100 billion. That means it can easily afford Instagram’s price, if only to keep a rising star out of the hands of competitors like Google.
