Facebook buys Instagram, and Microsoft buys AOL patents in Merger Monday megadeals by farzanaismail


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									Facebook buys Instagram, and Microsoft buys AOL patents in Merger Monday

Today: Facebook agrees to buy photo-sharing app Instagram for $1 billion
in move reminiscent of Google's (GOOG) purchase of YouTube. Also:
Microsoft makes big play in patent war by spending $1 billion on AOL's
intellectual property, and Wall Street falls in wake of jobs report.

Facebook snaps up Instagram for $1 billion in huge pre-IPO deal

In its most significant acquisition yet, Facebook announced Monday that
it is buying the most buzzed-about mobile photography app of the past
year, Instagram, in a pre-IPO deal that will cost the world's largest
social network $1 billion in cash and stock.

Facebook has made smaller acquisitions in the past, but many of them have
been so-called acqui-hires, in which smaller companies are gobbled up
mostly for the engineering talent in their workforce. This move, however,
is completely different, as Facebook takes out a possible rival and takes
over a company with a growing and devoted user base that has succeeded in
a field that Facebook helped spark: photo sharing.

"For years, we've focused on building the best experience for sharing
photos with your friends and family. Now, we'll be able to work even
more closely with the Instagram team to also offer the best experiences
for sharing beautiful mobile photos with people based on your interests,"
Facebook co-founder and CEO Mark Zuckerberg wrote Monday morning on his
Timeline profile.

In a nod to Instagram users who like the service's ability to share their
photos on several different social networks -- or solely on Instagram --
Zuckerberg said that Instagram will be kept separate from Facebook, much
like YouTube is run as a completely separate entity from Google,
including keeping its offices in San Bruno instead of bringing the
workers to Mountain View.

"We're committed to building and growing Instagram independently. ... We
think the fact that Instagram is connected to other services beyond
Facebook is an important part of the experience," Zuckerberg wrote.

The Instagram founders, two Stanford grads who established their company
in San Francisco less than two years ago, wrote Monday in a blog post
that the deal was important in their effort to continue to grow and
evolve the photo-sharing app.

"With the support and cross-pollination of ideas and talent at a place
like Facebook, we hope to create an even more exciting future for
Instagram and Facebook alike," CEO Kevin Systrom wrote.
Fans still had issues with the deal, however, as the deal immediately
pushed Instagram into Twitter's "Trending topics" as users, journalists
and other interested parties began posting their thoughts on the merger.
A host of users even took to Twitter to announce that they would delete
their Instagram account, citing Facebook's previous privacy kerfuffles.

Analysts did not agree with angry Twitter users, telling Mercury News
staff writer Mike Swift that Facebook made a smart move in the mobile
space as it approaches its much-anticipated initial public offering.

Instagram has "a formula; they figured out how to build this passionate
commuity around photos, and they were mobile first. Those are two areas
that Facebook could use some help with," IDC analyst Michael Fauscette.

Wedbush Private Shares Group analyst Michael Pachter agreed, while also
point out that Facebook ensured that it would not be beaten to the punch
by a competitor in the social-networking space.

"If it weren't mobile, it would maybe freak people out. But (Facebook is)
taking out a potential competitor," Pachter said. "And they certainly
don't want Google buying these guys. Can you image if Google bought them
and you could only post (Instagram) photos to Google+?"

Venture capitalists in Menlo Park may have been the happiest to hear the
news Monday, as reports said that Sequoia, Benchmark and others invested
$50 million in Instagram last week at a valuation of $500 million,
meaning they doubled their money in less than a week.

Investors and analysts expecting Facebook to continue making this kind of
big acquisition in the future may be disappointed, however: Zuckerberg
said that it was likely a one-of-a-kind deal.

"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. We don't
plan on doing many more of these, if any at all," he wrote.

Microsoft delves further into patent game with $1 billion AOL deal

Facebook's deal completely overshadowed the biggest news of the morning
until that point, Microsoft buying a bevy of AOL patents for the same
amount of the social network merger: $1 billion.

The price was much more than analysts expected for the patents, which AOL
had out for bids for months. AOL's stock leapt after the news was
announced, ending the day up 43.4 percent at $26.40, its highest price in
more than a year.

"It's a great deal for AOL," Benchmark analyst Clayton Moran told
Reuters. "Investors had anticipated little to no value for the portfolio
-- a few hundred million at the most."

For its part, Microsoft saw the deal as a huge addition to its patent
portfolio, which it is already leveraging as well or better than most
large technology companies. The Kirkland, Wash., company already receives
a healthy slice of cash from every Android smartphone sold, and other
licensing fees are proving very profitable as well.

"There is a fight for market share occurring on multiple fronts--
technology, patents, advertising," BGC Financial analyst Colin Gillis
told the Associated Press. "Microsoft, more so than others out there, has
been (using) its patent portfolio as a way to generate license fees. This
should strengthen that."

"This is a valuable (patent) portfolio that we have been following for
years and analyzing in detail for several months," Microsoft General
Counsel Brad Smith said in a statement.

Microsoft stock fell 1.3 percent on the day to close at $31.10.

Wall Street falls as investors react to weak March jobs report

Most of the stocks on Wall Street's resembled Microsoft more than AOL on
Monday, as the first session since Friday's jobs report showed a slowdown
in U.S. job growth resulted in all three indexes falling at least 1
percent and the Dow sliding lower than 13,000 for the first time in
nearly a month.

The day's losses were almost unanimously pegged to the slowdown in
payroll growth in the U.S. economy.

"The March payrolls are a reminder that the economy has still not reached
escape velocity," Tim McCandless, senior equity analyst at Bel Air
Investment, told the Wall Street Journal.

"At the moment, the one big news story that people have to focus on is
the jobs number so there's a focus on the disappointment there," Pioneer
Investments fund manager John Carey told Bloomberg News. "The economy
does continue to grow, but slowly, and I think that's been the source of
frustration for a lot of investors, that we haven't had the big forward
movement in the economy like we have in the past."

Some Silicon Valley stocks managed to avoid the day's losses, as Apple
(AAPL) gained 0.4 percent to set yet another record closing price of
$636.23; San Francisco online-reviews site Yelp gained 4.3 percent; and
eBay (EBAY) increased 1.9 percent after a third-party company said it
tracked more business on the site in March. ?Other valley companies were
not so fortunate, however, as Netflix (NFLX) fell 3.5 percent, Jive
Software declined 3 percent, and Electronic Arts (ERTS) declined 2.3

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