Instagram is a photo sharing social networking application that has caught on popularity around the world. But what is it about the application that caused Mark Zuckerberg, CEO of Facebook, to spend 1 billion dollars on it? At the time of purchase (April 2012), Instagram was only valued at 500 million. Instagram does not sell products, or place advertisements within the application. The company even saw a 2.7 million dollar loss within the first two years of operation. However, I believe that there are two reasons that Zuckerberg bought the company.
One, there is great potential for product advertisement. Many designer brands such as Chanel and Gucci already have their own Instagram accounts, posting photos of their new fashion lines and runway shows. This creates potential for Instagram being an important part of online marketing.
Second, the popularity of Instagram was growing at a very steady rate, with their user count rising over 600% within 1 year. This essentially set Instagram as Facebook’s primary competition in terms of user growth. By buying Instagram, Zuckerberg was able to eliminate competition.
With these two reasons at hand, Zuckerberg made great strides in gaining more market share, as well as owning a potentially extremely profitable company.

Sources:
http://www.businessinsider.com/instagram-finances-2012-8
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