How Instagram’s Acquisition Will Help Apple Sell More iPhones

AAPL: Apple logo

The recent acquisition of mobile app maker Instagram by Facebook for a billion dollars is the hottest news this week with investors eager to know what it means for Facebook and how the social networking giant will justify this price tag. However, not only is this big news for the two-year old startup and the now mega-rich employees, but it also endorses the platform on which it took its first baby steps into the app world – Apple’s (NYSE:AAPL) App Store. This mind boggling valuation will also lead scores of developers looking to leverage the power of apps to build businesses in the hopes of cashing in big, and all of these factors bode well for Apple selling more devices to support this growth.

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Until last week, Instagram was an app built just for the iPhone. No iPad app, no Android app, no other app whatsoever. Just one app, and a growing user base that crossed 30 million on the iOS alone. And then it launched the app for Android. The immense popularity of the offering helped it bag over a million Android users not long after its launch last week. Instagram even shot up to #1 on the App Store due to increasing curiosity following the announcement of the acquisition.

Only last month, there was another acquisition of an app maker that made the headlines. This was the Draw Something maker OMGPOP’s acquisition by Zynga for about $200 million. Draw Something is a popular mobile game app, which has been downloaded over 50 million times in less than two months since launch.

These acquisitions not only exemplify the rising popularity of app stores but also emphasize their role in building great software companies in the imagination of developers. Developers flock to an app store based on its popularity as a revenue generating medium, and Apple’s iTunes App Store is considered as a more lucrative and efficient way to deliver great software. Apple’s App Store generates more revenue per user than the Android marketplace, and the valuations that these recent acquisitions have attracted, will further drive its popularity.

And since the success of an OS platform is derived from the developer support that it draws, it has and will continue to have a significant bearing on the sales of iDevices.

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