I've always thought that the goal was to slowly let Instagram die in the same way Flickr has.

Flickr is dead? News to me, I've been using it today to search for creative commons images. Software is much broader than what you and your friends use. :-)

I just assumed it was instagram people, and the two products would eventually become one.

No. The FTC is probing the purchase, which was to close 2nd Quarter this year, so it'll delay that. That said, it's still very possible the two will eventually become one.