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From $0 to $1 Billion: Instagram’s Winning Strategy for Success

Never reinvent a wheel when a perfect wheel already exists. Two years ago Kevin Systrom and Mike Krieger seemed to have taken this maxim to heart and ran with it. Today, they are few hundred million dollars wealthier for the effort.  What was their secret? How did they do it?

Well, take a great idea that already exists, come up with a ‘fun’ feature allowing users to show off their creativity, put it on a device most people can’t seem to part and add the bonus of social networking to share photos with millions of others and you’ve got a billion-dollar product: Instagram.

Instagram is unlike Facebook and other social networking sites that generate revenue from advertising.  It has no patents and does not make a profit. Make that, did not make a profit. Although there is no exact formula for creating a perfect brand, there are certain aspects of Instagram’s success that we can take away in our quest to build an amazing brand.

What is it about this site that social networking giant Facebook would find it worth a billion dollars?

Instagram is a winner in mobile photos, which Facebook needs, and Facebook offers the better part of a billion users whose photo-sharing activities could pour fuel on to the Instagram fire.

Facebook was built on photo sharing. It now has over 130 billion photos, and is adding 10 billion a month. At one point, photos were responsible for half of Facebook’s traffic. Facebook makes money from targeted ads using your data, but until recently had not put ads next to photos. They now do, and it’s critical for their revenue growth that they get it right, and that their inventory of photos to put ads against continues to grow. Even more, mobile photos taken on Instagram are becoming one of the key ways that people record information about where they’ve gone and what they’re doing. Therefore, Facebook ‘check-ins’, where you post status updates or photos with your location, could use the help from Instagram.

Facebook’s main growth strategy is mobile. Facebook’s iPhone and iPad apps haven’t made creating photos as fun and easy as Instagram has, with its filters to pimp out your photos. Kevin Systrom and Mike Krieger of Instagram, and their talented team, can help Facebook improve their mobile apps. They make things look pixel-perfect, and bring an Apple design sense to Facebook. For Facebook to grow efficiently, they need the best people working on their most important stuff – mobile and photos. Instagram filters could make Facebook photos more fun for everyone.

The talent. It is incredible that such a small team could grow a company to north of 30 million customers in just over one year. They are the first true success story of the lean start-up approach. Clearly Kevin Systrom and company are a very talented bunch.

The technology. There had been speculation for a while that Facebook would launch a dedicated photo-sharing app. Photo-sharing was key to Facebook’s early growth, but their mobile products have, so far, been limited.  They bought the messaging app Beluga and soon after launched their standalone Messenger app (which was very similar to Beluga). Buying a popular app is easier than building your own from scratch. But it appears from noises made by Facebook/Instagram so far that Instagram will remain a standalone app; they’ll just “increase their ties to each other”. But don’t be surprised if there’s a U-turn here down the line.

The users (or rather their activity). Instagram is white hot. Back in August they were reporting one photo upload for each of their seven million users every five days. Now they’re at about 30 million users, including a few million Android users who have been chomping at the bit for months and are no doubt sharing like crazy. That’s an awful lot of uploading and viewing. Facebook is an advertising platform, and to sell advertising, you have to have ‘eyeballs’. Instagram has a lot of those, especially in core markets (the US and Western Europe), where Facebook’s core product has been declining recently. Tight Open Graph integration could provide a huge boost to activity levels within Facebook.

And to seal the deal…. What’s the point of generating interest without throwing some competition into the mix?Instagram first got an offer and a term sheet from Twitter, then doubled the company’s valuation by striking a deal with Facebook.

It’s rumored that Systrom orchestrated what was referred to as “a three-way chess match between Instagram, Twitter, and Facebook”. Twitter supposedly made an offer in the hundreds of millions of dollars range, but Instagram did not sign the term sheet. Systrom then supposedly went to Zuckerberg, who bid just to block the Twitter deal. Systrom preferred Facebook anyway (product and vision alignment was better). He apparently just used Twitter to increase his company’s valuation.

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