$1 Billion Instagram

There once was a fellow named Kevin who
Built a cool photo app with no revenue;
Along came a new friend,
Who said to him: "You, friend,
Will soon have more cash than you ever knew."

Just when you thought that the social media investing world couldn't get any frothier, Facebook has whipped the market up into stiff peaks with its $1 billion buyout of a startup with no revenue. Instagram, started in October 2010 by Stanford graduates Kevin Systrom and Mike Krieger, is an iPhone app that lets users add cool, retro visual effects to their photos and share them with friends. Apple declared this free photo tool their 2011 iPhone App of the Year.

Though Instagram lacks for a top line, much less a bottom one, it has captured 30 million users in its 18-month history, as well as much of the buzz in mobile photo-sharing. This was seen as a threat by Facebook, which was somewhat slow to develop its own mobile apps, even though half of its users access Facebook on the go. With this rich acquisition, Zuckerberg & co. have taken a potentially formidable competitor in house and retained a dominant position in photo-sharing, one of the main drivers of social networking usage.