The purchase of instagram was a pre-IPO move to prop up Facebooks offering as a mobile company before their core product had actually transitioned. Investors major question was if FB could transition from desktop to mobile at the time, and Mark needed something to back that up. Mark had been quite vocal about Facebooks guesses around mobile, html5, apps and how he needed to reorganize the product teams but couldn't get the story together in time. Thus instagram.
The logic in both the article and most of the comments seems to utterly forget the context of which FB was in at the time.
I think you have a great point looking at the deal in hindsight, however Instagram couldn't have looked that impressive to the typical institutional investor at the time. Facebook already had 845 million monthly active users with a large portion using mobile. Instagram was much smaller and if anything people were skeptical if a social network could be profitable. The acquisition could've made Zuckerberg look wreckless and backfired.
They tried to get Snapchat for $3B 3 years ago too, which also would have been a good buy, given Snapchat's growth trajectory, upcoming IPO and latest reported $20B valuation.
And Instagram is now cloning major Snapchat features outright in the race to compete in mobile attention.
The logic in both the article and most of the comments seems to utterly forget the context of which FB was in at the time.