From zero to one billion dollars in 551 days. Not bad for a company with only 13 employees offering a free application for the iPhone.
“If you build it, (they) will come”.
Not always so in the world of technology, except in the case of Instagram.
Instagram, a free photo sharing application, went from launch to being bought out by Facebook in less than two years. In what most young technology companies would view as a dream timeline, Instagram steadily built its userbase, acquiring just enough seed funding in the beginning to make the application work and was finally acquired by online giant Facebook for $1B in cash and stock.
This is far from a typical story for a start-up company. Even ignoring the enormous payout, Instagram differentiated itself from very early on.
Officially launching in the iTunes app store in mid-October, 2010, by December, 2010, less than two months later, over one million users had registered to use the application. Just six months later, in June 2011 that number had jumped to five million. Leap forward a mere three months and the number of users had doubled to over 10 million.
Now, quite a few technology companies have amassed large quantities of users for their free applications over the last few years (cough, ahem, Twitter). But the question has always been, how do you monetize a free application?
Some, like Google and Facebook, have targeted advertising as their main source of revenue. And let’s face it, for them, it works. Earning approximately $37B and $3.7B respectively in 2011, advertising is the right approach for these companies.
Instagram could have easily taken this route as well. By featuring in application banner ads and offering an ad-free paid version, this would have made them relatively typical of a mobile application company. However, it seems the people at Instagram saw short-term revenue as a potential block to their main focus. That is, making the application as good as it could be and amassing as many users as possible. It’s hard to say they made a bad call when all 13 employees now work for Facebook, still get to work on the application they love and have made substantial personal gains in the process. The deal reportedly made Instagram CEO, Kevin Systrom, around $400M richer.
Of course, every silver lining has a dark cloud hovering nearby.
First off, just prior to acquisition by Facebook, Instagram released a version for Android users. While this obviously made the application more accessible, it dismayed some die hard Apple fans who felt the application was “theirs”. The potentially elitist, cool factor of Instagram may have dropped a few percentage points.
Since this happened literally weeks prior to the buyout, this decision clearly had no effect on the purchase price from Facebook.
Secondly, whenever you have a massively popular application you have those who will seek to wreak havoc riding the wave of this popularity. Fake downloads of Instagram are available all over the Internet. Most notably, a version from Russia installs malware on your Android phone that automatically calls premium phone numbers leaving you with huge phone bills to go along with your broken application.
And the userbase? As of April, 2012, Instagram has 30 million registered users. One hour after the release of the Android version of the application the number jumped another million in less than a single day.
What can other technology hopefuls learn from the example of Instagram? In my opinion, probably not that much. The timing was perfect, the CEO is extremely well connected in both the online and venture capital worlds and luck had to play into this amazing story. You could say that the photo sharing application’s main advantage was that throughout their meteoric rise, they stayed on focus.
Jon Reid is an IT professional working in Corner Brook. His column appears every other Tuesday in The Western Star.