So the question is, why have they done it and why did they pay so much?
Well, Facebook are looking to secure their position as the place to go for photo sharing. Although it may not be initially obvious Facebook contains a huge archive of peoples images, a big driver in staying engaged with the social network. If Facebook hadn't purchased Instagram it would be highly likely that Google (Picasa, Panoramio, Google+) or Yahoo! (Flickr) would have picked it up, putting them in a much stronger position to move forward. As Facebook continues to face competition from other social networking sites it will be keen to ensure that the competition can't simply purchase a superior product with a wide user base. The premium price paid by Facebook would have been to ensure that the deal was locked down early on.
A lot of people have expressed concern about the acquisition by Facebook and what the future plans of the app will now entail. Facebook has a reputation for swallowing start-ups whole and not necessarily keeping the functionality running. To try and help calm the storm Instagram co-founder Kevin Systrom was keen to point out on the Instragram blog:
"It’s important to be clear that Instagram is not going away. We’ll be working with Facebook to evolve Instagram and build the network. We’ll continue to add new features to the product and find new ways to create a better mobile photos experience."
Moving forward though, will it prove to be money well spent by Facebook and will Instgram really survive intact!