i believe facebook for the first time since its existence was facing a competitor which could not only eat its revenues but also destroy its future prospects. Mainly because facebook primarily about photo sharing and instagram has attacked on the mobile photo sharing platform..
Facebook users already upload an average of more than 250 million images daily, making it the most popular photo-sharing service on the Web. But it's not the best by far and not the most mobile, which is Facebook's biggest weakness — that has been accomplished by Instagram,
its a good move by facebook. They also released anodroid version of this app and since then its users are growing at 2000 per minute. It is expected that in the next 10 days or so it will add 10 million subscribers..
Its not about being the photo uploading stuff as facebook has 850 million users who post photos. It is actually iphone where facebook does not have large amount of traction.
Instagram is the largest photo taking, filtering and sharing app on iphone and other idevices. With instagram, facebook can track user behaviour of iphone users.
iphone has one of the largest holding in USA's population. Facebook which became a hit because of its craze in the USA initially wants to be relevant today and tomorrow to USA population. It saw how Google was upsataged by Facebook, Yahoo by Google and MSN by Yahoo......the cycle continues.
It does not want to be upstaged by Instagram....
Instagram's decision is good. They make zero revenue today, surviving on investments by PE.
With Facebook buying them, they earn revenue indirectly, they still get to run the company, they get more resources from Facebook, all salaries will be on par with Facebook salaries. Lastly more trust with the application as its owned by Facebook.