This buy was just another way for connected Silicon players to cash out on the facebook IPO, since the IPO window for web 2.0 is closed.
I grant that $1B sounds a lot for Instagram and it is harder to see similar commercial value in photos than in videos.
My personal take is that in addition to friend connections, already posted photos could be the strongest lock-in for users that Facebook has against future competitors.
Video has a higher value proposition than photos. Look @ how hard flickr has struggled turning photos into a sustainable business model.
I'm comparing apples to apples. You're comparing apples to oranges.
Certainly that doesn't mean every large acquisition is justified (e.g. Bebo) but it also means you can't just automatically apply the "company X has no clear business model today and so shouldn't have been bought for Y" argument to every such acquisition either.
I fully understand that if I had a $1B offer for a company that I would literally be sick turning them down, but the potential was there for something really big. If I could keep going with $10m in the bank, I would like to think I would try.
