Facebook is in for its largest acquisition ever, spending as much as $1 billion for the ultra-hip photo sharing app Instagram. The app lets users share photos they take with their mobile devices, and provides filters to make photos look like Polaroids or hipster 1970s-like shots.

Instagram reached a loyal user base of more than 30 million people in just a little over a year, and it's still growing. In 2011, Apple picked Instagram as the iPhone App of the Year. Facebook has put quite the price tag on Instagram, and has decided that it's worth to make the largest acquisition in its history. The company is preparing for an initial public offering (IPO) of stock, and could be valued at $100 billion in a few weeks. According to Wedbush analyst Michael Pachter, buying Instagram eliminates a rival, while also giving Facebook the technology "that is gaining crazy traction."

"Facebook after this IPO is going to be in a position to be predatory. They can make sure no one steps in their way and buy anyone who gets in their way," said Pachter. In the deal that is expected to close by the end of June, Facebook is paying cash and stock for Instagram, and hiring its employees as well.

Privacy Concerns

While the acquisition is a major step forward for Facebook, Instagram users are not as pleased with the news. Many are already rushing to delete their accounts and all of their app data, and tech blog The Next Web has even posted instructions for users to delete their entire Instagram accounts.

Many Instagram users have expressed concerns over Facebook's privacy policies, and would rather delete their accounts before Facebook gets its hands on any data they have submitted through the app.

"There is no guarantee that Facebook will be using the data gathered by Instagram, but we wouldn't bet against it in a million years," wrote The Next Web, as cited by CNN. On the other hand, Facebook pledged to keep Instagram running independently.

"This is an important milestone for Facebook because it's the first time we've ever acquired a product and company with so many users," wrote Facebook founder and CEO Mark Zuckerberg on his Facebook page on Monday, April 9. "We don't plan on doing many more of these, if any at all."

According to Zuckerberg, Facebook will keep allowing people to post their Instagram photos to other social networks, and users will also be given the option of keeping their Instagram data off of Facebook. "We think the fact that Instagram is connected to other services beyond Facebook is an important part of the experience," added the CEO.

Why Buy Instagram?

In addition to all the privacy concerns floating around, another question keeps lingering: why did Facebook decide to buy Instagram? Why not Path, an upstart social network founded by Dave Morin, a former Facebook platform developer? Why not another startup?

One reason would be Instagram's target, i.e. mobile platforms, which would add more users. On the other hand, Facebook already has plenty of users, about 850 million.

While Instagram would mean more users, that wouldn't translate into more revenue as well. Mobile engagement, however, is a crucial step in today's world. With increasingly more people using mobile devices on a daily basis, an engaged mobile audience and good mobile uploading is essential. Then again, Facebook does have mobile users as well. In 2011, it reported 425 million monthly active users logged on to Facebook on a mobile device, and it now has mobile apps on every platform. The problem is not acquiring mobile users, but gaining revenue off them.

Gartner analyst Brian Blau believes there's a sound reasoning in keeping Instagram running independently, even if Facebook does integrate some of its own service, like Google did with YouTube. "Look at who Facebook is competing with - the Googles, Apples, Microsofts of the world. They have to build a strong brand and strong consumer platform," said Blau. "Having a separate social network...is something they needed to do a long time ago."

Another potential reason behind this acquisition could be competition. Photo filter apps are becoming increasingly more popular, and Instagram's recent expansion to Android has further widened its user base. Still, there are many other apps out there that could easily replace Instagram's filtering options. Lightbox, Little Photo, PicPlz, Magic Hour, these are just a few of those apps on Android.

Cnet's Molly Wood raises an interesting question: "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?"

(reported by Alexandra Burlacu, edited by Surojit Chatterjee)