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[Updated below with more details and background.]  Facebook just announced a deal to buy Instagram, the popular photo-sharing service with apps on iPhone and Android, for $1 billion in cash and stock.

“We think the fact that Instagram is connected to other services beyond Facebook is an important part of the experience,” says Facebook CEO Mark Zuckerberg in a post describing the deal. “We plan on keeping features like the ability to post to other social networks, the ability to not share your Instagrams on Facebook if you want, and the ability to have followers and follow people separately from your friends on Facebook.”

Instagram made its mark on the iPhone and just expanded to Google’s Android mobile platform last week. The service reported more than 27 million registers users as of a month ago, up from 15 million in December.

Zuckerberg writes, “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. But providing the best photo sharing experience is one reason why so many people love Facebook and we knew it would be worth bringing these two companies together.”

Throughout its history, Facebook has grown organically rather than through acquisitions, buying up smaller companies usually for tech talent. In fact, according to this list on Wikipedia, the most Facebook previously paid for a company was about $70 million.

The Instagram deal also comes at a critical time as Facebook preps for its initial public offering, expected to occur on Nasdaq later this year. The social networking powerhouse is looking to raise up $5 billion in what would be one of the largest Internet IPOs of all time.

UPDATE: Instagram CEO Kevin Systrom issued this statement today on the company’s blog.

When Mike and I started Instagram nearly two years ago, we set out to change and improve the way the world communicates and shares. We’ve had an amazing time watching Instagram grow into a vibrant community of people from all around the globe. Today, we couldn’t be happier to announce that Instagram has agreed to be acquired by Facebook.

Every day that passes, we see more experiences being shared through Instagram in ways that we never thought possible. It’s because of our dedicated and talented team that we’ve gotten this far, and 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.

It’s important to be clear that Instagram is not going away. We’ll be working with Facebook to evolve Instagram and build the network. We’ll continue to add new features to the product and find new ways to create a better mobile photos experience.

The Instagram app will still be the same one you know and love. You’ll still have all the same people you follow and that follow you.You’ll still be able to share to other social networks. And you’ll still have all the other features that make the app so fun and unique.

We’re psyched to be joining Facebook and are excited to build a better Instagram for everyone.

UPDATE 10:45 A.M. We reached out to Jason Karas, CEO of Seattle mobile photo application Trover, to get his sense on the deal.

“What’s powerful about the acquisition is that Facebook is buying a new, complementary form of social network,” said Karas.  “Instagram is an open network that brings people together around passions and interests regardless of previous social ties.  Its a very different curve, and one that has the potential to grow Facebook in radically new ways. More obviously, it’s a move that highlights people’s boundless desire to share their activities and interests via mobile photos, and their appetite for building new social relationships around them.”

UPDATE 10:55 A.M. This makes the deal even more intriguing. TechCrunch is reporting that Instagram raised a $50 million venture round at a $500 million valuation from Sequoia, Greylock and Benchmark last Thursday, meaning that investors doubled their money on the deal in just three days. Word of that deal was first reported on April 6th by All Things D.


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