And to go further: I have a Flickr account, I have some Picasa galleries.. I rarely visit those sites except to upload a batch and then go elsewhere.
I use Instagram 5-10 times daily when in transit, on lunch, while watching TV, etc...
Facebook have got 721m users and all the data they need to constitute incredible market research. In twelve months if Facebook couldn't build an app which is competitive to Instagram, and get it installed with ~5.5% of their user-base, I'd be really fucking worried.
Also consider this: Twitter add "Photos" to their filtering options adjacent to "Connect" and "Discover". So you can just click a Photo button and see all your connections' photographs in a stream. Oops, they just went halfway towards creating most people's Instagram experience.
Damn reading comprehension. ;)
To go a step further, consider: Flickr is available on every device (computer or phone) with an internet connection . Instagram was iOS-exclusive until a week or two ago, and yet it managed to reach sixty percent of Flickr's user base size. That's astounding.
Instagram doesn't have more users than Facebook. Hell, it doesn't even have more users than Flickr (51m) or Photobucket (50m).
Instagram is a small part of the web photo ecosystem.
It's a very peculiar play by Facebook, and not at all comparable to Google & YouTube other than the fact that Google acquired YouTube, and Facebook acquired Instagram. Instagram represents a diversification of Facebook's offering, and one which says "it's cheaper for us to spend $1bn acquiring Instagram than it is to make a compelling mobile photo app to usurp them".