Mark Zuckerberg says on his Facebook page that the acquisition is "an important milestone" for the company because it is the first time it has acquired a product and company with so many users. Instagram currently has more than 30 million users who upload more than 5 million pictures every day.
The introduction of Instagram on Android devices last week was a potential threat to Facebook, attracting thousands of new users signing up at a rate of more than 2,000 people per minute.
"Facebook will never make that $1 billion back, but it's still smart," says Patrick Moorhead, principal analyst at Moor Insights & Strategy, who called Zuckerberg's move defensive. "Instagram was the only thing challenging [Facebook's] dominance in photo sharing."
Photos have been a key part of Facebook's growth and popularity. On average, 250 million photos are uploaded on the social media website per day. By acquiring Instagram, Facebook knocked out one of its main competitors.
The move is also likely to give Facebook a greater ability to profit from its mobile applications, a part of the company that has yet to generate "any meaningful revenue" from, according to the social network's IPO filing.
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