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Facebook buys Instagram for $1billion

Acquisition showcases reality for services without business models

As announced by Facebook CEO Mark Zuckerberg and Instagram CEO Kevin Systrom, the world's biggest social network has snapped up photo-sharing service Instagram in a $1billion takeover.

Commentators have speculated that Facebook wanted to shore up its photo-sharing offering; Instagram has rapidly become a go-to service for iOS users, and it recently arrived on Android. (The service was also popular among web industry folk in our recent best mobile apps feature.)

However, long-term Instagram users are concerned about the future of the service, despite Zuckerberg stating it will remain as-is for now; it also showcases issues with web services that have no obvious business plan beyond getting investors to pump in funds, or experimenting with various forms of hit-and-miss advertising.

We asked entrepreneur Adii Pienaar for his reactions to the buy-out. He considered that the purchase in itself was justified in the sense that Instagram was a big competitor in photo-sharing – one of Facebook's most engaging features – and Facebook didn't want to reinvent the wheel. However, he questioned the economics: "$1billion – albeit in cash or Facebook shares – is a ludicrous amount of money for a pre-revenue company. This also sends out the wrong message to other online start-ups: build something that millions of people use, but you don't have to worry about actually making money."

So was this another case of a service lacking a proper business model inevitably being eaten by a bigger fish? And should people start paying for services they invest in? "Yes and no," said Pienaar. "As I said, the acquisition does send the wrong signals in terms of start-ups who may attempt a similar acquisition without any real business model in future. But I don't think the responsibility lies with the user to pay for a service to prevent that either. I think it just becomes more important for entrepreneurs to see acquisitions like Instagram's as an anomaly or outlier, instead of making it the holy grail that every new start-up strives towards."

In fact, Pienaar told us that despite clear consolidation and mergers happening with some frequency of late, there is room for smaller players in the web's social future: "I don't think other social networks will challenge Facebook's dominance easily, but I do think niche social networks – those with a couple of million or a hundred thousand users – have relevance in our future. For example, Instagram was perfect in terms of creating a community for photography lovers to share and interact in a way different from Facebook."

Want some photo tips? Check out this article on photography in design.

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