It is interesting what people do when faced with their fears. NBC's Fear Factor has made a reality show out of this fact.
Was Mark Zuckerberg's fear factor moment is what happens if Instagram continues its growth, cutting back on Facebook's traffic?
My assumption is Facebook has data that shows how many images showing up on Facebook are linked to Instagram images. At the rate of growth of Instagram, Facebook can see what happens to its image traffic. With $50 million of new VC money Instagram with 13 employees can add more resources and expand. Worse case before Facebook IPO, traffic shows a change in traffic due to Instagram's growth. $1 billion is cheap to absorb your top competition before someone else does or Instagram figures out a business model that allows them to collect revenue.
Washington Post discusses parts of this idea in their article.
Was Facebook’s purchase of Instagram motivated by fear?
It’s true — $1 billion really is cool. Just ask the guys at Instagram, who sold their mobile photo sharing app — along with their entire team (all 13 of them) — to Facebook for that astronomical figure this week.
One of the interesting speculations is the Instagram will move out of AWS to Facebook. Can you imagine what it takes to move 33 million user accounts and data?
Another interesting data point is the Instagram user base is much younger than Facebook.
Instagram users are young and Facebook users are old