Facebook Buys Instagram For $1 Billion, Turns Budding Rival Into Its Standalone Photo App | TechCrunch Facebook Buys Instagram For $1 Billion, Turns Budding Rival Into Its Standalone Photo App Posted by Josh Constine and Kim-Mai Cutler 0 Former Clearwell And CenterRun CEO Aaref Hilaly Joins Sequoia Capital As Partner Facebook has just finished a deal to acquire mobile photo sharing app Instagram for approximately $1 billion in cash and stock. Instagram will remain an independently branded standalone app that’s separate from Facebook, but the services will increase their ties to each other. The transaction should go through this quarter pending some standard closing procedures Last year, documents for a standalone Facebook mobile photo sharing app were attained by TechCrunch. Now it seems Facebook would rather buy Instagram which comes with a built-in community of photographers and photo lovers, while simultaneously squashing a threat to its dominance in photo sharing. At 27 million registered users on iOS alone, Instagram was increasingly positioning itself as a social network in its own right — not just a photo-sharing app.

And it was clear that some users were doing more of the daily sharing actvities on Instagram rather than Facebook’s all-in-one mobile apps, which had to be cluttered with nearly every feature of the desktop site. With the Instagram for Android launch last week, Instagram was going to get to 50 million registered users in a heartbeat after racking up more than 1 million in the first 24 hours. And with that kind of momentum, Facebook felt like it had to move — fast. After all, photo sharing and tagging are arguably what *made* Facebook. Whatever you think of the price given the fact that Instagram had no revenues, the reality is it was going to be worth whatever Mark Zuckerberg felt like paying for it. Both Google and Facebook had approached Instagram several times over the past 18 months, but the talks clearly didn’t result in a deal. So Facebook was going to have to offer a huge premium over the last valuation for Systrom and the board to take any deal seriously. [Instagram’s founders from left, Mike Krieger and Kevin Systrom.

Portrait by Cody Pickens ] With the deal, Instagram will gain massive design and engineering resources by joining forces with Facebook, a big change after running as a famously lean company with just a handful of employees. Still, the deal seems to let Instagram stay somewhat independent and maintain some of its company culture. Instagram CEO Kevin Systrom writes in a blog post , “It’s important to be clear that Instagram is not going away.” This is a really big departure from the way Zuckerberg has historically run Facebook as a single product. He has always been insistent that everything feed back into Facebook itself. Keeping Instagram as a separate product and brand is reminiscent of what Google has done with keeping YouTube and Android as separate fiefdoms within the company following their acquisitions. Instagram’s investors included Benchmark Capital, Greylock Capital, Thrive Capital and Andreessen Horowitz, along with angel investors including Quora’s Adam D’Angelo, Lowercase Capital’s Chris Sacca and Square and Twitter’s Jack Dorsey. The early investors must be thrilled with the price. From our understanding, the later investors, who put capital into the company at a $500 million valuation , seem happy with basically getting a 2X in a few days after the money was wired last Thursday.

Congratulations to Instagram’s founders Mike Krieger and Kevin Systrom. You opened the world’s eyes to seeing art in everyday life, and now Facebook has opened its doors to you. So in your honor, we’ve made you part of the TechCrunch home page logo . More On The Instagram acquisition Facebook's Instagram acquisition: the billion-dollar story - The Verge Facebook's Instagram acquisition: the billion-dollar story Linkedin In a surprise move, Facebook announced it had agreed to acquire photo sharing app Instagram for $1 billion. The company acquired all 13 of Instagram's employees, and came right after Instagram launched a hugely popular Android app, and raised a new round of funding. Though Mark Zuckerberg promised Instagram will continue to be developed as a separate application, the announcement set off something of a backlash. This Stream has a component height of 2. The sidebar size is short. 15 Total Updates Since Instagram agreed to sell to Twitter for $525 million before choosing Facebook, says NYT The New York Times is reporting that Twitter had a deal in place to buy Instagram for $525 million back in March — before the photo-sharing service's CEO Kevin Systrom called the whole thing off. We've heard about Twitter's interest in Instagram...

Facebook's stock transfer to Instagram cleared by the state of California Despite the fact that the FCC approved Facebook's purchase of Instagram last week, the state of California had one more final hearing on the matter — a "fairness hearing" meant to approve the transfer of Facebook stock as part of the whole deal.... FTC closes Facebook / Instagram investigation, deal may 'proceed as proposed' Facebook's proposed purchase of Instagram has been cleared by the FTC, paving the way for the deal to close nearly five months after the initial announcement. This news comes a little over a week after the UK's Office of Fair Trading gave similar... Facebook's purchase of Instagram cleared by UK watchdog The UK's Office of Fair Trading (OFT) has halted its probe into Facebook's $1 billion purchase of Instagram. OFT began to look into the purchase last month over fears that it would give Facebook an unfair advantage in the photo-sharing market. If... Instagram Will Take Facebook Into the Mobile Age Instagram Will Take Facebook Into the Mobile Age On 4/16/12 at 12:00 AM Illustration by Kelsey Dake Tech & Science Mark Zuckerberg and the other people who run Facebook are neither stupid nor insane. Nor are they known for reckless spending.

So why is Facebook dishing out $1 billion to acquire Instagram, a company with 13 employees that generates zero dollars in revenue from a mobile photo-sharing app? The answer: Facebook hasn’t been able to develop a decent mobile application, while Instagram makes one of the most popular apps on the iPhone and Android platforms. But lost in all the exclamations was the larger significance of the deal, which is that the Web is now moribund. The action has moved to the mobile space, now so important that Facebook, the last great company designed for the desktop Internet, was willing to spend a billion to avoid missing out . Could Facebook already be in danger of becoming obsolete? Back in 2004, when Zuckerberg hacked together the first version of the site in his dorm room, the world looked very different. Computing centered around PCs. The Internet was all about websites. Then came the iPhone and Android, and today the only reason anyone creates a website is to promote a cool new mobile app. Try Newsweek for only $1.25 per week There are a billion smartphones in the world. Soon they will outnumber PCs.

Within the next decade, virtually all mobile phones will be smartphones: 6 billion people will have a constant connection to the Internet. Remember the “$100 laptop” that some do-gooders at MIT hoped would change the world? Well, it arrived, as a cool little smartphone with a 4-inch screen. Facebook’s failure in mobile is yet another example of the “innovator’s dilemma,” the notion first put forth by Harvard professor Clayton Christensen to explain why once-dominant companies fail to adapt to new tech waves, because they’re too busy focusing on the old world to embrace the future. Zuckerberg apparently doesn’t intend to let this happen to Facebook. And while $1 billion might seem crazy, keep in mind that Facebook is about to go public with an equally nutty valuation of $100 billion. A small price to pay to avoid extinction. Facebook buys Instagram...but for what? - CNET CNET Facebook buys Instagram...but for what? Facebook buys Instagram...but for what? Facebook doesn't need users, community, or a startup that's not yet profitable, no matter how hip it is, says Molly Wood. What's this huge purchase really about?

Up Next Governments suck at social media, but you deserve some blame There's a lot of speculation today about why Facebook would spend $1 billion to acquire the uber-hip photo-sharing app Instagram. To some, it seems obvious; to others, it's the biggest sign yet of a growing Web bubble. To me, it just raises question after question, and the biggest one is "why." What does Facebook gain from buying Instagram? Let's look at some of the possible reasons, shall we? Users: Instagram has 30 million users and a potentially huge influx of more, thanks to its recent expansion onto the Android platform . Instagram CEO Kevin Systrom says he thinks Instagram should easily reach 100 million users--that's significant engagement, for sure. But Facebook doesn't need users. Facebook has users--some 850 million of them. And while I've argued that Facebook's growth potential is slowing, the social network could scoop up another 100 million global users with its eyes closed over the next year, especially as its global expansion increases . And I'm not sure Facebook is in the market for more users so much as it's in the business of figuring out how to make money off those users.

So far, Instagram represents more users, but not any more revenue: more mouths to feed, if you will. Facebook shouldn't be after more un-monetized users, at this point. Mobile: My colleague Rafe Needleman and others argue that mobile engagement is the biggest reason Facebook lusts after Instagram. A large (and growing) and super-engaged mobile audience and decent mobile uploading (which Facebook still lacks, for some reason): that must be it. Mobile is where it's at, after all: go mobile or die. Facebook is already mobile, possibly at its peril. James Martin/CNET That doesn't feel right either. After all, mobile is both boon and bane for Facebook. Again, Facebook already has mobile users: in December 2011, it said 425 million monthly active users got to Facebook on a mobile device. It has mobile apps now on every platform--the fact that they're not very good, in some cases, doesn't mean they're not in wide use. Facebook doesn't have a problem with acquiring mobile users: it has a problem making money off them.

If you believe Facebook's S-1 filing in advance of its upcoming IPO, the company is, in fact, deeply concerned that an expanding mobile base could be a serious problem for its business. Remember this? "Although the substantial majority of our mobile users also access and engage with Facebook on personal computers where we display advertising, our users could decide to increasingly access our products primarily through mobile devices. We do not currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven." So, then, why buy a primarily mobile app that doesn't currently, as far as we know, make any money? Instagram's stated goal has been to build lots of users, then serve them ads--the song of every app maker on the market. Well, they'll probably get a lot more users from a Facebook purchase, but how long does it actually take to make back a billion dollars, especially when no one has yet managed to rake in significant dough from mobile ads? It seems to me that an acquisition like this could actually deepen Facebook's mobile woes, at least in the short term. Yes, Facebook needs to be mobile, but isn't Instagram just another pressure point?

Competition: As investor Chris Dixon put it on Twitter, "Giving up 1% of your market cap to take out your biggest threat is a savvy move." That's an argument that could have legs. Instagram CEO Systrom told Venture Beat that it plans to "help every user on earth share their lives and discover the world through a series of beautiful images." (Emphasis added.) That's an ambition worthy of Mark Zuckerberg himself, and Android expansion is a major step in the world domination direction. Or is it? Photo filter apps are hardly the precious commodity they were when Instagram was still frustratingly iPhone-only. Lightbox, PicPlz, Little Photo, Magic Hour ... here's a list of just 10 apps that easily replace the filtering capabilities of Instagram on Android, and there are many more out there. And if it's filters plus a new community to sign up for that you're after, why, Facebook and Instagram competitor Path are also on Android . I'd argue, however, that considering the wide breadth of Android users, most of them are not, in fact, in search of yet another hip new photo-sharing network to sign up for, which is its own potential growth issue for Instagram.

If Android users already have Picasa for photo sharing, lots of good app replacements for applying filters, Facebook for social networking, and Path for all of the above, is the hipster allure of Instagram enough to get them signing up in droves? Or is that just the San Francisco Bay Area bubble talking? Path and many other apps do photo filtering and sharing on Android. Screenshot by Molly Wood/CNET (Side note: Why didn't Facebook just buy Path, an upstart social network founded by former Facebook platform developer Dave Morin , which lots of Facebook users are using to funnel filtered photos onto Facebook itself? Bad blood? Future story? Anyway, as I was saying ...) Data: OK, so if it's not users, it's not mobile, and it's not taking out the competition, maybe it's just data. Instagram's 30 million users have uploaded some 100 million photos that are conveniently geo-tagged and maybe kind of personal. Really? Facebook needs more personal data? Facebook's users upload 100 million photos a day . They're not only geo-tagged, they're also tagged with precise business locations and other people, all of whose information is also already on Facebook.

Instagram doesn't strike me as the treasure trove of personal data that Facebook needs to finally, at long last, crack the nut on targeting ads. The questions go on and on. There are a few answers that do make sense: the acquisition keeps Instagram away from Google and Twitter, both major competitors. Notably, it gets some decent engineering into the House of Facebook that can shore up Facebook's mobile-uploading and site-viewing interfaces, both of which badly need an overhaul. And maybe all the above data points, in aggregate, do actually add up to $1 billion in reasons. But I can't help it: I still feel like there are more questions than answers to why this price tag makes sense. I hope Facebook isn't getting distracted by hipster buzz or the photo-sharing bubble, especially at a time when its business decisions need to be as sound as possible to shore up future investor confidence. Don't spend those billions before you've got them, guys. Mark Zuckerberg and Kevin Systrom on What Really Happened When Facebook Bought Instagram | Vanity Fair Twitter LENS CRAFTER Instagram founder Kevin Systrom, photographed at Ocean Beach, in San Francisco. There’s no picture of the moment when everything changed for Kevin Systrom .

But if there were, it would look something like this: A lanky, very tall, dark-haired man in his late 20s sits on a bench at the Caltrain commuter station in Palo Alto, California. A sepia tone and weathered patina might underscore the mood of weighty contemplation. It was early April of last year, and Systrom was waiting for his business partner, Mike Krieger, to arrive from San Francisco. Systrom had just left Mark Zuckerberg’s nearby house and was still digesting the offer that the Facebook founder and C.E.O. had made him: to buy Instagram, the photo-sharing app that Systrom and Krieger had launched just 18 months before. The price Zuckerberg offered was $1 billion—$300 million in cash and the rest in Facebook stock, an especially generous-seeming deal, on the eve of his company’s much-anticipated initial public offering. The offer was even more impressive given Instagram’s size and age. At the time, it had just 13 employees, operating out of a cramped space in the South Park section of San Francisco.

Still, the small crew had managed to attract 30 million iPhone users in just a year and a half by offering a service that allowed a person to quickly upload, prettify through the use of filters, and publish images to the Web for friends to see. A version for Google’s Android mobile operating system had launched the week before, gaining another million users in a single day. What’s more, although the app generated no revenue, it had attracted so much attention from venture capitalists that the start-up had nearly closed an impressive new round of funding at a wildly high valuation of $500 million. Zuckerberg had just doubled that, leaving Systrom with a lot to think about on that train-station bench. Click. If there ever was a money shot to take for Instagram and Systrom, that was it. Starting Up In many ways, life has always been a bit charmed for Systrom, who grew up in the upper-middle-class Boston suburb of Holliston, Massachusetts. Such towns are full of smart, ambitious parents raising smart, ambitious children. And so it was with Systrom.

After high school at the nearby Middlesex boarding school, he made his way to Stanford University, having been drawn toward Silicon Valley early on. “That idea that you could get rich really quickly off of starting a start-up didn’t really exist in Massachusetts, on the East Coast, during that time,” Systrom says. It certainly did on the West Coast, where he entered Stanford’s class of 2006 and majored in management science and engineering. After completing an internship at the company that would become Twitter, he would work for fewer than three years at Google and then for a little more than a year at a small travel-tip site called Nextstop. Systrom would then strike out on his own with a start-up called Burbn, the first incarnation of what would become Instagram. The game-play location-based service was named, in whimsical Silicon Valley fashion, after his interest in fine whiskeys and bourbons. The Brazilian-born Krieger had been on an even more traditional techie path, moving to a job as an engineer and user-experience designer at the hot social-media platform Meebo in San Francisco after also graduating from Stanford. Krieger, who had come to the U.S.

in 2004 and initially wanted to be a journalist, had majored in “symbolic systems,” an unusual combination of computing and cognitive science, which had also been the major of Yahoo C.E.O. Marissa Mayer and LinkedIn’s co-founder Reid Hoffman . Krieger, who has become the invisible man of the Instagram story, was, in many ways, its soul, according to Systrom, especially its programming one. The origin story of Systrom and Krieger’s partnership is almost a parody of a Silicon Valley founder meet-cute. Although the two had known each other at Stanford, it was much later when a friendship would click, after the pair kept encountering each other at the same San Francisco coffeehouses. Krieger recalls, “I’d see Kevin and we’d trade tips, and I’d be like, ‘Hey, have you tried this?’—new geeky stuff basically.

I think we had this understanding that we were both interested in working on things that were beyond what we were just getting to do by ourselves.” Systrom had been struggling to launch Burbn, and on one of those caffeinated days in 2010, he approached Krieger and said, “Hey, this is going to be a real thing—are you interested in being my co-founder?” Krieger was immediately interested. “I had an instant image in my head of: I’m working in San Francisco,” he remembers. “I’m working on this thing I love and it’s just the two of us.” The effort was not without funding, having attracted half a million dollars in investments—$250,000 from the prominent Silicon Valley V.C. firm Andreessen Horowitz and the other half from Steve Anderson, of Baseline Ventures. Still, Burbn was fraught from the start, mostly because it didn’t seem sufficiently different from the scores of other popular and established location-based check-in services—such as the then red-hot Foursquare—which allow you to share the places you visit and recommend them to your friends.

Even Burbn’s motto was decidedly squishy: “A new way to communicate and share in the real world.” To make things even worse, Nextstop—the travel site where Systrom had worked earlier—would soon be sold to Facebook, where Systrom had also been close to working years before. “I was like, Great, I missed the Twitter boat. I missed the Facebook boat,” he says. Peaks and Valleys As often happens at start-ups, as soon as Krieger signed on, Systrom told him he wanted to begin afresh with Burbn and focus on a new idea. In Silicon Valley start-up terms, this is called a “pivot,” which is usually a polite way of saying you’ve screwed up and are starting over. So, the pair began to ruthlessly re-assess Burbn, eventually deciding to create a separate service under the tongue-in-cheek rubric of Codename. Crucially, they dumped slow-moving Web-site coding in favor of an app-only design, thereby throwing their lot in with the Apple iPhone 4, which had just been launched in June 2010.

But their real breakthrough was conceptual: “Instead of doing a check-in that had an optional photo, we thought, Why don’t we do a photo that has an optional check-in?” says Systrom. It was the sort of eureka moment that made perfect sense because the solution had been there all along: photography had been woven through Systrom’s life, dating back to his time as the president of the photography club at Middlesex. “I was naturally inclined to take pictures, because it was much more about tweaking variables than it was necessarily creating something with your hands,” says Systrom, who in prep school had used a small Nikon S.L.R. camera to take all kinds of arty shots, from reflections in car windows to shadows in Chinatown. At Stanford, Systrom opted to go abroad to Florence, Italy, for the winter term of his junior year, where he focused on photography. A teacher there persuaded him to switch from his Nikon to a plastic Holga that took square photos, a choice that would be echoed later at Instagram. Florence also marked Systrom’s introduction to using chemicals in the developing process, such as selenium toning, which can give photos a distinct purple hue.

All this would ultimately be incorporated into the new app that Systrom and Krieger were busily sketching out by hand in notebooks in the summer of 2010. During the exhausting push, Systrom took a cheap vacation to a hippie artists’ village called Todos Santos, in Baja California Sur, Mexico, with his girlfriend, Nicole. On a beach walk one day, Nicole told him she would be reluctant to use the app he was working on because her pictures would never be as good as the ones a mutual friend took. “I said, ‘Well, you know what he does to those photos, right?’ She’s like, ‘No, he just takes good photos.’ I’m like, ‘No, no, he puts them through filter apps.’ She’s like, ‘Well, you guys should probably have filters too, right, then?’ I was like, ‘Huh.’ ” “Like,” indeed. Systrom went back to his hotel room and scoured the Internet, trying to figure out how to make a filter.

That day, he created the first, which he called X-Pro II, after the “cross-processing where you take the wrong chemicals for the wrong film and you put them together.” He and Nicole started taking pictures using the filter and posted the first Instagram photo in this unusual style of a little Mexican dog lying next to Nicole’s foot. Once they had the filters, they aimed to launch the new service in just eight weeks. Excited, Systrom and Krieger shared their new plans with their backers. Andreessen Horowitz had no objection, nor did Baseline’s Anderson, who was soon working with them closely on the shift. “I remember thinking, Finally,” says Anderson, who had been frustrated watching Systrom’s difficulties in finding the right recipe for success. When it came to naming the new service, Systrom and Krieger agreed that “instant” was the key word. After trying hundreds of possible mashups, they settled on “telegram” as the second component. With the beta version readied, Systrom and Krieger introduced the app to tech luminaries and key media outlets, mining connections from Stanford and their previous jobs in the Valley.

Due in no small part to the combination of Systrom’s infectious enthusiasm and Krieger’s charm, the feedback was encouraging, especially when important figures such as Twitter’s Jack Dorsey got interested. Systrom, who had interned at Twitter’s precursor, Odeo, when he was in college (and sat right next to Dorsey at the office all summer), met with Dorsey to show him Instagram. Dorsey was an instant fan. “From the start, Instagram was a simple application and a joy to use,” Dorsey remembers. “I was blown away by how much detail they put into the experience. It reminded me about how much Kevin talked about photos [when he worked at Odeo]. There was an obvious obsession there, but it had never been put into practice until then.” Instagram launched on October 6, 2010, with users sharing on both Twitter and Facebook, among others. On that first day, the app had 25,000 users, and it grew exponentially from there. Early on, there was a San Francisco Giants playoff game taking place at AT&T Park, near the company’s offices.

As Systrom recalls, this led to another aha moment: “We were hearing the roars of home runs, not feeling like we were actually there,” he recalls. “We did an ad hoc [search] within the database to see if anyone was using Instagram in the area, and there were 140 photos in the last two hours taken in the stadium, so we could see the game [through the app]. . . . And that was the moment we realized Instagram could be far more than photo sharing.” Photo Ops The media and general public alike were almost instantaneously captivated by Instagram, but it wasn’t long before Systrom and Krieger confronted their first unexpected setback. In 2010, around the time Andreessen Horowitz made its $250,000 investment in Burbn, the firm had also put money into PicPlz, a photo service co-founded by longtime entrepreneur Dalton Caldwell. Though PicPlz was aimed at the growing Google Android mobile eco-system, and the V.C.

firm was supportive of Systrom and Krieger’s pivot, the investors felt they were facing an “ethical issue,” as Horowitz later put it, and thus duty-bound to honor their relationship with PicPlz, to which Instagram was now, unexpectedly, a competitor—and so, a month after Instagram’s launch, Andreessen Horowitz announced it was making an additional investment, of $5 million, in PicPlz, forgoing any further investment in Instagram. (The firm would make $78 million on the Facebook sale, thanks to its initial stake in Burbn—a roughly 31,000 percent return.) Systrom, who had been aware of the conflict, learned about the deal by reading it in The New York Times and was devastated. “Instagram was clearly taking off and we just wanted a fair shake,” he says. “Andreessen Horowitz was a big name … and it was like, It sucks to get turned away.” Ben Horowitz, who had been through his share of investment and start-up disasters, says, “We should have told [Systrom] the second the decision was made.” Indeed, Systrom felt ambushed at the time.

“I chalk it up to a moment in time where we were really excited about the momentum we had and we just didn’t quite understand the dynamics,” he says. There was still plenty of interest from other investors, though, and Systrom quickly zeroed in on one venture capitalist he thought would bring the most to the situation, including star power: Matt Cohler, of Benchmark Capital. The 36-year-old Cohler is a demi-god to entrepreneurs, with a résumé that includes an early stint as an exec at LinkedIn and then a spot as one of the first five employees hired at Facebook. He left his job there running product management in 2008 to become a venture capitalist. “It was very clear [Instagram] was striking a chord and fulfilling an unmet need,” says Cohler. “This was the first app I had seen for smartphones that was built native for this platform. . . .

It was a programmable remote for life.” By February of 2011, Benchmark was leading a $7 million Series A round of funding, which valued Instagram at $25 million and which also included investments from Dorsey, angel investor Chris Sacca, and another former Facebook tech star, Adam D’Angelo, who just happened to have been Mark Zuckerberg’s roommate at Exeter, and was then running his own start-up, a question-and-answer Web site called Quora. At a party just a month later, at a retro cocktail bar called Bloodhound in San Francisco, to celebrate millions more users, Krieger toasted Cohler and the group. “To the good old days,” said Krieger. “Mike,” replied Cohler, who was the grand old man of the group at 33 years old, “these are the good old days.” Deal Breaker I ndeed, with fewer than a dozen employees, Instagram found it nearly impossible to keep up with its geometric growth in users. While Krieger manned the tech operations, Systrom focused on product improvements and fielding interest from big companies looking to buy Instagram, still less than a year old.

Chief among the suitors were Dorsey, at Twitter, and Zuckerberg, at Facebook. “Kevin would call me and I would call him,” Zuckerberg says of his relationship with Systrom during the early days of Instagram. The two had been casual acquaintances ever since meeting at various gatherings at Stanford while Systrom was a student. (Zuckerberg had even tried to get Systrom to drop out to work at Facebook.) After Instagram’s launch, Zuckerberg had Systrom over to his house in Palo Alto for dinner several times to talk about what he called “philosophy.” It wasn’t just a matter of selfless mentorship and theoretical discourse, though; Zuckerberg had to pay attention to the rising tide of Instagram, especially since photo uploading had been a key element of Facebook’s own initial surge in popularity. “They got a lot of traffic from Facebook,” Zuckerberg says. “And it occurred to me we could be one company.” Presumably, it also occurred to him that the then little Instagram could pose a very real threat to Facebook. It was not an idle worry: Instagram was hip, elegant, fun, and “mobile-first,” and moving to mobile was a burgeoning problem for the largely desktop-bound Facebook.

Most of all, Instagram represented the constant fear that even the greatest of Internet giants fret about daily: in Silicon Valley, the young can sometimes eat the old, instead of the other way around. Meanwhile, interest from Twitter waned while Jack Dorsey was distanced from the company for a time, due to his removal from the leadership infrastructure. When he returned as executive chairman, in March of 2011, Dorsey resumed his advances with new gusto, trying to convince Systrom that the social-media company would be his best partner going forward. At the same time, Systrom got a call from another young and aggressive venture capitalist, Roelof Botha, of Sequoia Capital, an investor in Tumblr and a number of other trending start-ups in the social space. He had been watching Instagram’s growth carefully and reached out to Systrom in early 2012, impressed by its “stickiness.” “A lot of hot start-ups were losing users as quickly as they get them, like people who get on a bus and then get off in the back,” says Botha. “But they retained their users.” Almost immediately Botha committed to $50 million in new funding for Instagram.

Systrom was soon drowning in choices. With Instagram as the start-up du jour, he was invited to the tony conference run by the New York investment bank Allen & Co. in Arizona, the younger offshoot of the hoary Sun Valley power meet-up. Also in attendance: Jack Dorsey. After talking a while in front of a campfire over drinks one night, Dorsey and Twitter’s then chief financial officer, Ali Rowghani, proposed to Systrom what they considered a formal offer to buy Instagram. The price was in the mid-$500-million range, a combination of restricted and common stock—but no cash. While Dorsey and Rowghani recall handing Systrom an actual term sheet, Systrom insists they did not, instigating a he-said-he-said that had serious and unpleasant consequences later. Whatever happened around the fire, Systrom stayed in touch with Twitter until he eventually called Dick Costolo , Twitter’s C.E.O., on Wednesday, April 4, to tell him Instagram was going to take the huge Sequoia investment and remain an independent company. Systrom also contacted Zuckerberg to let him know about his decision.

But, unlike Twitter, Zuckerberg wouldn’t take no for an answer and texted Systrom the next day, asking to talk in greater detail about his interest. “A gesture does not equal an offer, because every tech company is always talking to every other,” Zuckerberg says of his persistence. “So, I wanted to be very clear that we were very serious.” Zuckerberg had the power at Facebook to make quick and dramatic moves like this. He invited Systrom over to his home in Palo Alto on Friday, two days after Instagram had spurned Twitter, for a series of long and detailed talks about where the two men could take Instagram with Facebook’s massive firepower. “This never had the feeling of negotiation, because we kind of wanted to work together,” Zuckerberg says. He wanted it very much, events would prove, and the discussions that Friday quickly led to an offer that was essentially double what Twitter had floated and venture capitalists had valued the company at. More enticing still, Zuckerberg’s offer included a giant, $300 million dollop of cash. Systrom was overwhelmed by Zuckerberg’s massive offer and intensity, which blurred his focus on keeping Instagram independent.

“I’m not sure what changed my mind, but he presented an entire plan of action, and it went from a $500 million valuation from Sequoia to a $1 billion [one from Facebook],” says Systrom. “Obviously, the equation was completely different.” (The final value of the offer, after a drop in Facebook’s stock, was $736.5 million.) What probably clinched the sale was one of the key promises Zuckerberg made to Systrom: to allow Instagram to operate relatively independently within Facebook, unlike a lot of other “acq-hires” the company had made and then proceeded to shut down and integrate. “Most of the other things we bought were talent acquisitions, but in this case we wanted to keep what it was and build that out,” says Zuckerberg. Systrom downplays the idea that this courtship was in any way remarkable. “I think everyone thinks that the acquisition was made in a dark room with Trent Reznor music playing. Do you know what I mean? Like there was some dramatic thing,” he says, referencing a scene from The Social Network. “And it turns out that some of the biggest decisions get made relatively quickly, without much fanfare.” Well, a little.

After leaving Zuckerberg’s, Systrom called Krieger, who had to blow off his sister, visiting San Francisco from New York, to decide on Instagram’s next steps. After he arrived in Palo Alto, the pair sat on the Caltrain platform and talked about what a deal could mean. Eventually, as they were driving back to San Francisco, Systrom told Krieger, quite simply, “I really like Mark, and I really like his company. And I really like what Facebook is trying to achieve.” The pair decided to sell right there and then. The entire negotiation would last from Good Friday to Easter Sunday. Saturday, Systrom was back at Zuckerberg’s to formalize the negotiations and come to an official acquisition agreement, which they would both sign. Their back-and-forth was interrupted by a television-watching party for Game of Thrones that Zuckerberg, an avid fan, was throwing. Systrom spent much of the time outside in the yard, on the phone to the lawyers. “I didn’t watch the show,” he says. Rather, he spoke to his investors to inform them of the decision and get a sign-off. “I sat back and thought, What just happened?,” Baseline’s Anderson recalls.

“Holy shit—what just happened?” That was the same question Dorsey and Costolo were asking, for very different reasons, when, on Monday, April 9, the news was publicly announced, without a heads-up from Systrom or an opportunity to mount a counter-offer. “People can do whatever they want to do with their company,” Costolo says now. “I don’t think anybody has an obligation. I don’t have any moral stance—that’s up to him and his shareholders.” Dorsey says the news was harder for him to take, as he felt he had developed a bond with the younger entrepreneur. “I found out about the deal when I got to work and one of my employees told me about it, after reading it online I got a notice later that day since I was an investor,” he says. “So I was heartbroken, since I did not hear from Kevin at all. We exchanged e-mails once or twice, and I have seen him at parties. But we have not really talked at all since then, and that’s sad.” Dorsey’s last Instagram shot perhaps said the proverbial thousand words about it all: a picture of an empty Muni bus.

There would be more clashes with Twitter, including a regulatory hearing held by the California Corporations Department over the level of seriousness of the Twitter offer—hinging on the Arizona campfire moment. But, despite the brief drama that ensued, the deal was done and Instagram was Facebook’s prize. And while Twitter may have been irked, others were thrilled. Systrom closed the funding deal with Sequoia before Instagram was officially absorbed into Facebook, thereby giving the firm an instant windfall. “I have to give Kevin a lot of credit for keeping his word,” says Botha of a move to honor a handshake agreement that cost the young entrepreneur a small fortune. Out of Service Late that summer the small Instagram team headed south to Facebook’s headquarters, in Menlo Park—30-some employees now ensconced in a small section of an enormous new campus. Just weeks before, though, the smoldering controversy with Twitter had flared up again, when Twitter turned off the “follower” feature it had extended to Instagram—a move that, to many, smacked of retaliation for the spurned acquisition deal. “We look at them as part of Facebook, as a single organization,” says Costolo.

“I don’t think it makes a lot of sense to tease them apart.” Soon after their move to Menlo Park, Instagram parried back by pulling its support for Twitter card technology. In simple terms, this feature keeps the photos of users inside the Instagram network, instead of offering good versions of those photos inside Twitter’s stream. No surprise: Twitter launched its own filter feature soon after. But another, larger, and more serious setback came less than a month later, when Instagram introduced new terms of service, prepared by a Facebook lawyer, which quietly allowed the company to access users’ photos for advertising purposes—without seeking permission or notifying them. Headlines such as instagram can now sell your photos for ads underscored the outrage of users—not to mention its celebrity following—who threatened to abandon the photo app over the change. (Instagram’s user numbers actually grew during this period.) Systrom quickly backtracked by removing the offending clause, but the damage was done—especially given Facebook’s reputation for intruding on the privacy of its users.

“The problem is actually more that we did it so quickly, without all the right senior people looking at it and going, ‘Hey, why are we including this clause on advertising if we’re not doing advertising yet?,’ ” Systrom says. “And that’s the question I should’ve asked, and I made that mistake, and that’s my fault.” Systrom says he treated the controversy as a learning experience, telling his team to consider Instagram a small country and to imagine how people would feel if someone had suddenly changed all the road signs to a different color. Since then, things have been much smoother, with the active user base growing by more than 1,000 percent since the acquisition, for a total of 100 million active users after only two and a half years on the market. That compares, interestingly, to the 200-million-user mark that Twitter reached at the end of last year, which was achieved over a six-year timespan. But who’s counting? Well, everyone in Silicon Valley always is, and some of them think with growth like this Systrom and Krieger should not have sold Instagram quite so quickly. For Systrom, such talk is pointless.

“Hindsight is 20/20,” he says, quite aware that Silicon Valley is littered with stories of hot start-ups that had spurned big acquisition offers only to “blow up or go sideways” soon after. In other words, for every Instagram, there are digital graveyards full of Friendsters. With Facebook, which has just given Systrom a business partner to start figuring out how to make some money from the service, he believes the possibilities are endless, and very long-term. “It’s wrong not to be thankful for what’s happened,” he says. And yet, even after what is clearly one of Silicon Valley’s best rags-to-riches stories, Systrom has declined to crack open and drink the best whiskey he owns—a 100-year-old bottle of Jim Beam—to celebrate his epic win. “If you open it, then you’ve opened it,” he says.

“I’m still waiting for the right occasion.” Share Facebook Buys Instagram for $1 Billion Facebook Buys Instagram for $1 Billion 46.2k By Emily Price 2012-04-09 13:10:18 UTC Facebook snapped up the hugely popular photo-sharing app Instagram Monday, for roughly $1 billion in a combination of cash and stock. Facebook CEO Mark Zuckerberg announced the acquisition in a post on his Facebook Timeline Monday. The sale is expected to close later this quarter, and will bring the nine-person staff of Instagram to the social network. “For years, we've focused on building the best experience for sharing photos with your friends and family," Zuckerberg said in the post. "Now, we'll be able to work even more closely with the Instagram team to also offer the best experiences for sharing beautiful mobile photos with people based on your interests.” Zuckerberg went on to say that the company will be building on Instagram's strengths and features and growing the app independently rather than “just trying to integrate everything into Facebook.” Facebook plans on keeping features within the app that allow photos to be published on other social networks, and the ability to have followers and follow people who are not necessarily your Facebook friends.

SEE ALSO: 20 Witty Reactions to Facebook's Acquisition of Instagram "We will try to learn from Instagram's experience to build similar features into our other products," Zuckerberg said. "At the same time, we will try to help Instagram continue to grow by using Facebook's strong engineering team and infrastructure." Instagram CEO Kevin Systrom echoed Zuckerberg's statements on the Instagram company blog adding "We’re psyched to be joining Facebook and are excited to build a better Instagram for everyone." SEE ALSO: Deleting Your Instagram Account? Here’s How to Save Your Pics Instagram launched its iOS app in October 2010, and came to Android for the first time last week. This is the first time Facebook has acquired a company or product with so many users. “We don't plan on doing many more of these, if any at all." Zuckerberg said. “But providing the best photo sharing experience is one reason why so many people love Facebook and we knew it would be worth bringing these two companies together.” What do you think this means for the photo-sharing app — and how will it boost the social network? Let us know your thoughts in the comments. BONUS: The Best Instagram Pictures Ever 12 Incredible Instagram Images Does Facebook Want to Place Your Face?

Face.com Buyout Eyed - AOL Finance Does Facebook Want to Place Your Face? Face.com Buyout Eyed Before you go, we thought you'd like these... Rick Aristotle Munarriz, AOL.com May 29th 2012 5:05PM Facebook ( FB ) has been a bit of a shutterbug lately, and its latest snapshot may be to acquire face-recognition specialist Face.com. Reports began to surface on Monday indicating that Facebook was looking to get over its post-IPO blues by snapping up the Israeli-based company that matches faces in digital photographs to the names of existing friends. Some of the reports indicate that the rumored price tag would be nearly $100 million, a sum that would be small potatoes for a loaded Facebook that recently agreed to shell out $1 billion for photo-sharing speedster Instagram. Smile for the Camera The leading social networking website operator has been playing up its eye candy side lately. Last month's move to acquire Instagram turned heads, especially since reports indicate that it was entirely Mark Zuckerberg's idea . Facebook rolled out its own dedicated photo-sharing app last week. The free Facebook Camera application for smartphones makes it easier to upload and view pictures on Facebook.

Sharing digital photographs has always been a big part of the social networking experience. Anyone who has seen the partly fictionalized The Social Network movie will know that the programming project that got Zuckerberg noticed at Harvard before Facebook was a photo-centric site where visitors voted on one of two student pictures. And, yes, the Facemash incident really did happen. Related Articles Facebook Plummets Below $30: Where Does the Misery End? Time to Face.com the Music In an interesting twist, Russian newspaper Vedomosti is reporting that Facebook may try to buy Face.com by going through Yandex ( YNDX ). Yandex -- Russia's leading search engine -- teamed up with an investment fund to acquire an 18.4% stake in the photo-recognition specialist two years ago. The report indicates that Yandex would be willing to accept a combination of cash and the now-depressed Facebook stock to sell its minority stake in the company, making it easier for Zuckerberg to grab the rest of the company. 49 PHOTOS See Gallery Does Facebook Want to Place Your Face? Face.com Buyout Eyed Oct.

28, 2003: Mark Zuckerberg hacked into restricted areas of Harvard University's computer network to create Facemash, a website that pulled the private dormitory ID photos of students, then asked users to compare the pictures of two random students and chose which one was better looking. For the brief period before university administrators shut it down, it proved quite popular. January 2004: Zuckerberg began to write the basic software to create a universal Harvard social directory, TheFacebook. Jan. 11, 2004: Zuckerberg registered thefacebook.com domain. Then, on Feb. 4, TheFacebook launched at Harvard University. Mark Zuckerberg, right, and Dustin Moscovitz, co-founder, left; took a semester off in 2004 to further improve on TheFacebook website. March 2004: Initially restricted to Harvard students, TheFacebook expanded to other colleges, including Stanford University , Dartmouth College , Columbia University and Yale University . April 13, 2004: Zuckerberg, Dustin Moskovitz, and Eduardo Saverin formed Thefacebook.com LLC, a partnership.

June 2004: TheFacebook moved it's headquarters to Palo Alto, Calif., and received an investment of $500,000 from Peter Thiel. June 2004: Thefacebook incorporated into a new company, and Sean Parker, a co-founder of Napster, took the job of president for the growing business. September 2004: Facebook replaced its "User is..." prompt with a "What's on your mind?" question in the newly designed space for posting and sharing status updates called "The Wall." September 2004: Harvard students Cameron Winklevoss and Tyler Winklevoss of ConnectU filed a lawsuit against Zuckerberg and other Facebook founders for allegedly stealing their idea for a college social network called HarvardConnection. July 19, 2005: Then-dominant social networking site MySpace was acquired by News Corp., spurring buzz on the Internet about the possible sale of Facebook to a larger media company. Aug. 23, 2005: TheFacebook dropped its "The" and became Facebook. Purchase price it paid for the Facebook.com domain name: $200,000.

September 2005: Facebook added networks for high school students. In December 2005, Facebook reached 6 million users. 2005: Artist David Choe began painting murals at the headquarters of Facebook in exchange for company stock. Today, the shares he received are worth an estimated $200 million. 2006: A cash flow statement was leaked showing that Facebook had a net loss of $3.63 million for the 2005 fiscal year. Sept. 26, 2006: Facebook removed its restrictions and allowed anyone 13 and older with a valid email address to join. A news feed and a mini-feed were introduced, providing easier ways to see what your friends are up to. May 2007: Facebook Platform launched with 65 developers and more than 85 applications. Third-party developers quickly followed, building applications to integrate with Facebook. Games such as Farmville and Mafia Wars spread rapidly. July 25, 2007: A federal judge gave twin brothers Cameron (left) and Tyler Winklevoss, founders of ConnectU, and Divya Narendra until Aug.

8 to flesh out the allegations in their lawsuit against Mark Zuckerberg. Those charges included fraud, copyright infringement and misappropriation of trade secrets. December 2007: Facebook reached 58 million users. With the successful addition of Facebook Platform and video, growth remained strong. Facebook charted a course toward becoming a general portal like AOL; meanwhile, the choice was made not to aim toward being acquired, as MySpace.com, YouTube and so many other tech startups were. June 2008: Facebook settled two lawsuits, ConnectU vs Facebook, Mark Zuckerberg et al. and intellectual property theft, Wayne Chang et al., over The Winklevoss Chang Group's Social Butterfly project. The settlements effectively had Facebook acquire ConnectU for $20 million in cash and Facebook shares valued at $45 million, based on a $15 billion company valuation. July 2008: The first Facebook iPhone app was released. August 2008: News broke that some employees reportedly privately sold their shares to venture capital firms at prices that gave the company an implied valuation of between $3.75 billion and $5 billion. October 2008: Facebook set up its international headquarters in Dublin, Ireland.

February 2009: The "Like" social plug-in was added, allowing users to follow status conversations without having to say anything. The like button was instantaneously a hit. It's initial purpose has been widely misinterpreted as a positive approval button. August 2009: Facebook acquired FriendFeed, a real-time news aggregator. September 2009: Facebook said that its cash flow had turned positive for the first time. April 2010: Facebook announced the acquisition of photo-sharing service Divvyshot, and introduced Community Pages. May 31, 2010: Quit Facebook Day was an online event where users vowed that they would quit the social network shortly after widespread criticism was received on the new privacy controls rolled out in mid-May. Zuckerberg publicly admitted the company had "missed the mark." An estimated 33,000 users quit the site. June 2010: Facebook employees sold some shares on SecondMarket at prices giving the company an implied valuation of $11.5 billion August 2010: Places launched, allowing users to share information about where they are in the real world, so friends can find each other. Oct.

1, 2010: The Social Network , a film about the start of Facebook, was released to theaters. The film, directed by David Fincher , was met with widespread critical acclaim and won the Golden Globe and Critics Choice Best Picture for the Year. Mark Zuckerberg stated that the film is an inaccurate account of what happened. November 2010: Facebook added features to its mobile software for Android devices. The number of users reached just short of 608 million, with mobile traffic increasing. December 2010: TIME magazine named Facebook founder and CEO Mark Zuckerberg the 2010 TIME Person of the Year. January 2011: Equity investors put $500 million into Facebook for 1% of the company, placing its implied value at $50 billion. February 2011: Facebook added 'Civil Union,' and 'Domestic Partnership' to its Relationship Status options. February 2011: Facebook application and content aggregator Pixable estimated that Facebook would host 100 billion photos by summer 2011. June 2011: Facebook partnered with Skype to add video calling as well as a new group chat feature.

September 2011: Heroku joined forces with Facebook for application development using the Facebook Platform. Sept. 22, 2011: Facebook debuted the new Timeline user interface at the F8 Convention. October 10, 2011: Facebook launched its iPad app. December 2011: Membership reached 845 million users. December 2, 2011: New York Mayor Michael Bloomberg (left) Facebook Chief Operating Officer Sheryl Sandberg (center) and Sen. Charles Schumer (D-N.Y.), react during a news conference on the announcement that New York will be the center of Facebook's new engineering technology initiative. December 22, 2011: Facebook launched the new profile user interface, Facebook Timeline. January 24, 2012: Facebook announced that "Timeline" would become mandatory for all users. Feb. 1, 2012: Facebook filed paperwork to go public, seeking to raise $5 billion on Wall Street in the largest flotation ever by an Internet company. March 6, 2012: Facebook launches Messenger for Windows, which gives users of Windows 7 Facebook services without the need for a web browser.

April 9, 2012: Facebook announced that is will acquire the photo-sharing app Instagram for $1 billion USD. May 18, 2012: Facebook founder, Chairman and CEO Mark Zuckerberg, center, rings the opening bell of the Nasdaq stock market from Facebook headquarters in Menlo Park, Calif. The social media company priced its IPO on Thursday at $38 per share, and beginning Friday regular investors will have a chance to buy shares. Instagram Founders Were Helped by Bay Area Connections - The New York Times The New York Times Technology |Behind Instagram’s Success, Networking the Old Way Search Continue reading the main story SAN FRANCISCO — Past midnight, in a dimly lighted warehouse jutting into the San Francisco Bay, Kevin Systrom and Mike Krieger introduced something they had been working on for weeks: a photo-sharing iPhone application called Instagram. What happened next was crazier than they could have imagined. In a matter of hours, thousands downloaded it. The computer systems handling the photos kept crashing. Neither of them knew what to do. “Who’s, like, the smartest person I know who I can call up?” Mr. Systrom remembered thinking.

He scrolled through his phone and found his man: Adam D’Angelo, a former chief technology officer at Facebook . They had met at a party seven years earlier, over beers in red plastic cups, at the Sigma Nu fraternity at Stanford University. That night in October 2010, Mr. D’Angelo became Instagram’s lifeline. “Adam spent like 30 minutes on the phone with us,” Mr. Systrom recalled, “walking us through the basic things we needed to do to get back up.” Continue reading the main story Mr. Systrom, now 29, offered this as a parable for the roomful of would-be entrepreneurs who came to hear him talk at Stanford last spring : in the intensely competitive start-up scene here, success is as much about who you know as what you know. “Make sure to spend some time after the talk getting to know the people around you,” he told his audience. Advertisement Continue reading the main story Those people, he might have added, might one day shape your destiny. They might one day press money into your palm. They might nudge you to quit your day job and gamble on a vague idea.

This week, barely 18 months after that night in the warehouse, Instagram was scooped up by Facebook for $1 billion , turning Mr. Systrom, Mr. Krieger and several of their friends-turned-investors into multimillionaires. The extraordinary success of Instagram is a tale about the culture of the Bay Area tech scene, driven by a tightly woven web of entrepreneurs and investors who nurture one another’s projects with money, advice and introductions to the right people. By and large, it is a network of young men, many who attended Stanford and had the attention of the world’s biggest venture capitalists before they even left campus. Among this set, risk-taking is regarded as a badge of honor. Ideas are disposable: if one doesn’t work, you quickly move on to another. Timing matters. You make your own luck. Photo Instagram’s offices in San Francisco. From left, Shayne Sweeney, Mike Krieger, Josh Riedel and Kevin Systrom were at work on their app last May.

Credit Peter DaSilva for The New York Times “There is some serendipity for entrepreneurs, but the people who are the rainmakers are the ones who entrepreneurs need to meet in order to make those connections that lead to success,” said Ted Zoller, a senior fellow at the Ewing Marion Kauffman Foundation who studies economic development around entrepreneurship. “The social ties that you make are directly correlated to success.” For Mr. Systrom, the connections forged at Stanford were crucial. Mr. D’Angelo, a 2006 graduate of the California Institute of Technology, helped him find engineers, set up databases and flesh out features. Soon after Instagram came out of the box, he put his money into it. So did Jack Dorsey, 35, a founder of Twitter; Mr. Systrom had been an intern at the company that became Twitter. A colleague at Google, where Mr. Systrom worked straight out of college, introduced him to Marc Andreessen, a venture capitalist who had already invested millions in Facebook. In the spring of 2010, even before Instagram was born, Mr. Andreessen wrote him a check for $250,000.

The hothouse for many of these vital connections was a competitive work-study program for budding entrepreneurs called the Mayfield Fellowship Program. Mr. Systrom was a 2005 fellow; Mr. Krieger followed two years later. It was equally important in putting the two men in direct contact with new, hot start-ups in the Bay Area, along with venture capitalists looking to seed newer, hotter start-ups. “There’s ample opportunity to meet V.C.’s and make connections,” recalled Becky Neil, who was in the Mayfield program with Mr. Systrom in 2005. “We treat them as our peers.” (Mr. Systrom and Mr. Krieger declined to comment for this article, citing regulatory restrictions in advance of Facebook’s public offering.) Advertisement Continue reading the main story Mr. Systrom grew up in a Boston suburb and attended the Middlesex School, a private academy in Concord, Mass., with 375 students and nearly that many acres. In 2002 he enrolled at Stanford, majoring in management science and engineering, a program created for those who wanted to be knee-deep in the business world. He joined the Sigma Nu fraternity, which, as Ms.

Neil recalled, was known for its relatively tame parties, the kind that didn’t end with anyone being rushed to the hospital. They were promoted with music videos , some of which feature an impish Mr. Systrom. His peers recall Mr. Systrom as having an eye for photography and design, with class presentations that were among the most beautiful. He was naturally gregarious and also keen to be an entrepreneur. He briefly ran a Craigslist-type marketplace catering to Stanford students. As early as 2005, recalled one classmate, Alex Gurevich, Mr. Systrom had his eyes on mobile phones as the wave of the future. Photo Kevin Systrom, an Instagram founder, in a photo taken with the program on the night it was released for the iPhone in 2010. Credit Mike Krieger Mr. Systrom wasn’t quite ready to break out on his own. After graduation, he went to work for Google in neighboring Mountain View. By the standards of his peers, it was considered a good and safe job, though not terribly cool. And he joined years after Google went public, which was too late to make a windfall.

He lasted there less than three years and moved on to Nextstop, a travel recommendation site that was founded by former colleagues at Google and was eventually acquired by Facebook. But Mr. Systrom, as Mr. Gurevich recalled, was “antsy.” He had made enough investor contacts from his Stanford days, and by early 2010, he had a germ of a business idea. His big break, if there was one, came at a party at the Madrone Art Bar in January 2010, with a start-up called Hunch as the host. There he met Steve Anderson, 44, founder of Baseline Ventures and an experienced investor who had by then banked on Twitter. Mr. Systrom pulled out his iPhone and showed him something he was building, called Burbn after his liquor of choice. As Mr. Anderson recalled it, Mr. Systrom had a prototype and a vague idea. He wanted to build a service that let people share their location with friends, like the popular app Foursquare, with some photo tools attached to it. He was testing the prototype with friends.

“We knew mobile was going to be important, and we knew there was an opportunity to create compelling experiences for mobile devices,” Mr. Anderson remembered of their initial conversations. “But we didn’t know a heck of a lot more than that.” Mr. Anderson worried about one thing: the echo chamber that can plague a one-person start-up. He suggested that Mr. Systrom find a business partner. Mr. Systrom agreed. Within days, Mr. Anderson wired $250,000 to a newly hatched company, set up by a lawyer whom he had recommended to Mr. Systrom. Mr. Andreessen would soon add $250,000 from his firm. Mr. Systrom could then quit his day job. Advertisement Continue reading the main story His search for a partner naturally led him to the Mayfield network and to Mr. Krieger, an immigrant from Brazil known as Mikey and, in Mr. Gurevich’s words, “a stud engineer.” Mr. Krieger brought different skills. He had majored in symbolic systems, an interdisciplinary program that blends coding with psychology, linguistics and philosophy. One of Mr.

Krieger’s projects, as his professor Clifford Nass recalled, was to design a computer interface to gauge human emotion. “He clearly was very interested and thoughtful about psychology,” Mr. Nass said. “You see that in Instagram. It’s not a technology triumph. It’s a design and psychology triumph.” Photo During a so-called instawalk in Manhattan last August, Natalie Rodic Marsan, left; Cheyenne Tulfo; and Lori Weinstein snapped photos. Credit Yana Paskova for The New York Times The two men began working out of Dogpatch Labs , housed in an old pier, with fishing nets on the walls and long tables that functioned as shared office space for aspiring tech companies. Julian Green, who briefly worked out of Dogpatch, recalled that the two men were unusually obsessed with design detail. Once, he said, they spent two hours perfecting the rounded corners of the app’s icons. One of the crucial lessons of Instagram is that its founders did not spend a lot of time fussing over their original idea. Soon after they started working together in March 2010, Mr. Krieger and Mr. Systrom decided that Burbn would not work. It had too many features.

It was too close to what Foursquare was already doing. They quickly moved on — pivoted, in Silicon Valley jargon. They decided that photos, popular with Burbn users, would be front and center. Please verify you're not a robot by clicking the box. Invalid email address. Please re-enter. You must select a newsletter to subscribe to. Sign Up Privacy Policy The release of the iPhone 4 gave them a perfect hook: it had a high-performing camera and could display higher-resolution images. Users could take a picture, tweak it, write a caption and send it out to the world. They gave it a new name: Instagram. “We renamed because we felt it better captured what you were doing — an instant telegram of sorts,” Mr. Systrom wrote on Quora , a question-and-answer site that his friend Mr. D’Angelo had started. “It also sounded camera-y.” The men worked into the wee hours on Oct. 6, 2010, to get Instagram up and running. At 4 a.m. Mr.

Systrom wrote on his Twitter feed, “Well there goes that night of sleep.” Advertisement Continue reading the main story Rob Abbott, one of the advisers at Dogpatch Labs, who was keeping them company that night, said, “I remember them just sitting side by side, phones all over the desk, and cans of Red Bull.” Instagram took off like a rocket, in part because Mr. Systrom had whipped up demand. As he explained in an interview with the Internet television network Revision3 in January, Mr. Systrom let some influential technology bloggers and contacts, like Mr. Dorsey of Twitter, try a test version of the app before its official release. Soon Mr. Dorsey was using it to send photos to his Twitter followers, and word spread. Photo Steve Anderson, founder of Baseline Ventures, wired $250,000 to the newly hatched Instagram. Credit Peter DaSilva for The New York Times But the frenzy was as much blessing as curse. The heavy load prompted an all-night effort to switch to Amazon.com’s rent-a-server service, which made it easy to add capacity to keep up with growth. Mr. Systrom and Mr.

Krieger soon took to carrying MacBook Airs and wireless cards everywhere. If there were glitches, they could quickly get online and troubleshoot. “Which happened a lot, due to the influx of traffic,” Mr. Abbott said. From 25,000 users in the first 24 hours, Instagram grew to 300,000 by Week 3, and then into the tens of millions. With its quirky borders and filters that gave photos extra punch or a nostalgic glow, it tugged at heart and soul . Celebrities got on board, including the pop star Justin Bieber last July. On Twitter, he posted an Instagram photo of traffic in Los Angeles . Teenage girls screamed — and then checked out Instagram. An Android version of the app, released this month, brought in one million people in its first 24 hours. The founders kept their team lean, adding just 11 people since the app’s initial release, including several Stanford graduates. Investors lined up at the door. Benchmark Capital, whose partners Mr. Systrom had met while in college, led an investment round of $7 million in February 2010. Mr. Dorsey and Mr.

D’Angelo joined in. Last week came a second round of financing that valued the company at $500 million. Mr. Systrom told associates in recent months that he was not interested in selling. Advertisement Continue reading the main story Then Mark Zuckerberg called. When he and Mr. Systrom talked last Friday, Mr. Zuckerberg, Facebook’s chief, was blunt: Facebook wanted to buy Instagram. Over the next 48 hours, the two companies hammered out the details for a $1 billion cash-and-stock deal, according to people with knowledge of the matter who spoke on the condition of anonymity because the discussions were private. To toast the occasion, Mr. Zuckerberg wrote a lengthy post on his personal Facebook page, calling the transaction an “important milestone” for the company, which has been eager to get a stronger foothold in mobile apps. The deal, and the speed with which it came together, implies that Mr. Zuckerberg saw Instagram’s meteoric rise as a potential threat, whether as a stand-alone service or in the hands of one of its rivals like Google or Twitter. A Facebook spokeswoman declined to comment. Mr. Systrom did not end up beating Foursquare.

As it happened, he and Dennis Crowley, one of Foursquare’s founders, grew up in neighboring towns in Massachusetts. Over Christmas break two years ago they met at a local pub. Last month they met up on a business trip to London, where they met the prime minister , and decided to take a short vacation to Scotland together, complete with Scotch tasting. Mr. Systrom may have lost one connection in the deal: Mr. Dorsey of Twitter. His company, according to several people briefed on the matter, had expressed interest in buying Instagram in recent months. Mr. Dorsey once used Instagram daily to send photos to Twitter , but he has not been back since the deal was announced, perhaps a sign that he is not happy to see it in the hands of a competitor. A Twitter spokeswoman declined to comment. The Instagram team showed up at Facebook this week, as documented by a Facebook vice president on — where else — Instagram. Whether Mr. Systrom will stay there for long is anyone’s guess. With a public offering imminent, there is the risk that Facebook may soon become what Google was — a safe place to be, but not terribly cool. And Mr. Systrom may again get antsy.

Correction: April 25, 2012 An article on April 14 about the photo-sharing Web site Instagram misstated, in some editions, the age of Jack Dorsey, a Twitter founder and early Instagram investor. He is 35 years old, not 40. Evelyn M. Rusli and Nick Bilton contributed reporting. A version of this article appears in print on April 14, 2012, on Page A1 of the New York edition with the headline: Behind Instagram Feat, Networking the Old Way. Order Reprints | Today's Paper | Subscribe

Question: Last month, Facebook shelled out a cool $1 billion to acquire what photo application company?
Answer: Instagram