The Lessons We Can Learn from Instagram

Chances are you’ve seen an article or two detailing Facebook’s billion dollar acquisition of photo sharing service and social network Instagram. And you may have wondered what the ruckus was about. Rightly so, since the acquisition is one of the grandest exits by any company in recent history.

After hearing the initial news, I was intrigued. First of all, Facebook was making a huge move, of which Zuckerberg was the architect. Second, who would have thought that Instagram was worth that much?! And finally, what does this mean for the rest of us? Here are a few figures:

  1. Instagram launched in October 2010, which means it had only existed for 551 days before the deal
  2. With only about a dozen employees, Instagram is incredibly lean
  3. Founder Kevin Systrom is only 28 years old. Co-founder Mike Krieger is 27.
  4. By December 2010, only 2 months after its launch, it had reached 1 million users. In contrast, it took only 6 days after the Android launch to reach 5 million Android downloads. By the time of the deal, Instagram had been downloaded 30 million times on mobile devices
  5. Instagram reported no significant revenue streams by the time of its acquisition. In fact, the company has never stated anything publicly about how it intends to make money.

The last two points should startle you. Only weeks after Zynga acquired OMGPOP on the success of the runaway hit Draw Something, Facebook buys Instagram. Draw Something generated 35 million downloads in 6 weeks. The similarity is that both start-ups experienced truly exponential growth. 

This is indicative of a major shift in the way that people think about business. Any conservative investor would be ringing the alarm at the thought of this. A company with no reported revenue streams sells for a billion dollars?! Let’s start making our way to the exits because that is just insanity. Some have compared the deal to be the first sign of a bubble, much like Yahoo’s $3.57 billion acquisition of GeoCities in 1999. But I’ve come to believe that this time around it’s different. Here are a few things I think are really interesting about this deal.

  • There has been a shift away from revenue streams toward user bases. A company that focuses on making a core product well has an intrinsic value that goes beyond monetization.
  • Mobile has become an increasingly high priority for any tech company, as more and more users spend time on mobile devices. Remember, Instagram is a completely native mobile app that was built solely for mobile.
  • Facebook’s mobile offering has been limited at best. Downsizing a full-scale web service into a smaller screen is very difficult.
  • Facebook built its empire largely on photo-sharing. For Zuckerberg to immediately recognize the threat of Instagram only points to his intuitive prowess in leading a company.
  • Meteoric growth will raise eyebrows and open wallets.

Analysis aside, let’s end with a recipe. Add one part talent, two parts vision, and a few shakes of luck and you might just be the next Kevin Systrom.

  1. Graduate from Stanford and intern at Twitter. Work for Google. Whatever you have to do to build credibility, do it.
  2. Develop a vision for a product that meets a consumer need better than other products are doing so currently. Or design a new product from the ground-up that meets a need consumers may not even know they have.
  3. Link up with a technical co-founder that can actually make the product
  4. Raise some seed money to successfully launch the product
  5. Work your ass off to make sure that the core product excels at what it proclaims to do
  6. With a little luck, you’ll have meteoric growth, and the rest is history

- Alex Kim

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