People are already starting to denounce Facebook's $1 billion acquisition of Instagram as an obvious ripoff that's clearly sign of a bubble. 

But we at BI Intelligence, Business Insider's internet market research service, have been tracking Instagram for a while, (we called it the future of startups) and we think the price is fair. It may even undervalue the young company.  

First of all, Instagram just may be the most capital-efficient company in the world. It's got barely a handful of employees and tens of millions of users (see chart below). It's hard to understate the effect that such leverage has on value. 

Second, let's be straight about one thing: photos is the core of the social networking experience, at least the way Facebook envisions it. Photos is Facebook's most popular application by far, and users spend the most time looking at photos. Or, to put it another way: without photos, Facebook is toast.

And photo sharing on mobile is the future, if only for the simple reason that all mobile phones have cameras.

But the bigger reason is that mobile is the future of computing (see chart). 

Facebook has no future if it's not the leading mobile social network. Because photo sharing is the core of social networking, the most popular mobile photo sharing app will become the most popular mobile social network. And because mobile is how we'll do most of our computing (see chart), the most popular mobile social network will become the most popular social network, period.

It's hard to overstate how big this trend is. Pretty soon, billions of people will be using smartphones, and it's a fair bet each and every one of them will be sharing photos. That is a monumental business opportunity. And if you don't think it can be monetized, you're lacking in imagination—not just advertising, but prints, premium services and so forth: mobile app revenue has been booming (see chart).

Here's the bottom line: whether or not you like its sepia filters, Instagram is the future of mobile social networking, which itself is the future of social networking and a ginormous business opportunity. To us, $1 billion dollar sounds cheap.

Most of the charts here were drawn from our Future Of Mobile slide deck. Click here to check it out →

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See Also:

• The Pendulum Has Swung, Alright -- You're CRAZY If You Don't Try To Do A Startup
• Instagram Was Facebook's Biggest Threat
• Instagram's $1 Billion Payday Is Proof That Apple Has The Best Platform For Developers