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Insta-billion: The price tag on Instagram

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David Brancaccio: A wee little program that lets you send photos from your cell phone to your pals is worth a billion U.S. dollars. That’s the price the social networking company Facebook is paying to snap up Instagram, an app that also lets the sender mess with the photos before sending them. Want it to look like a vintage Polaroid? Instagram’s got a filter for that.

To help us understand the money involved here, we turn to Carl Howe at the Yankee Group in Boston. Good morning.

Carl Howe: Good morning, David.

Brancaccio: Instagram, over a billion dollars. For what? I can already send a still photograph on my little phone.

Howe: What I think this says is Facebook has realized that there are consumers out there who are not part of Facebook but still want to share their lives via photos. And I think they wanted to snap up Instagram before anyone else bought them.

Brancaccio: What does this say, that the number is so high? That’s a significant purchase price, with a “b” in front of it.

Howe: Yeah, I think this really shows the difference in the software market today. Used to be software was stuff that stuffy enterprises bought. Now, it’s consumer apps on smartphones and tablets. And what we’re seeing now is companies are starting to realize, this is the future of software. Little tiny apps that you load onto your phone.

Brancaccio: Did it surprise you that Facebook would announce an acquisition during the period that runs up to its initial public offering of stock?

Howe: I was very surprised to see Facebook make this acquisition in this period just before its IPO. This is unusual because they’ll have to refile some of their papers and it’ll make things more complicated for the IPO. On the other hand, I think they were really acting preemptively. They didn’t want somebody like Google or Apple snapping up Instagram before they could take them over.

Brancaccio: Carl Howe, vice president of research at the Yankee Group in Boston. Thank you very much.

Howe: Always a pleasure.

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