Google was like a big castle with a moat protecting it. YouTube was just a moat -- no economic castle yet. Google bought them to add to their moat and further protect the castle.
No way Instagram is worth $1bb as a standalone, going-concern -- but as a defensive play for FB it might be.
All back to Clayton Christensen: modular systems disrupt integrated systems. Microsoft, Intel disrupt Apple, IBM. Instagram, Twitter, Pinterest disrupt Facebook.