Instagram was started in 2010 by photographer Kevin Systrom and Programmer Mike Krieger who was also an investor. The company was bought out by Facebook in 2012 for a value of $1 billion. However, it is believed to be worth 10+ times that amount. Facebook was criticized for this purchase back then. However, they are truly getting the last laugh as Instagram is proving to be a tremendous revenue boost. According to a Bloomberg.com report, analysts covering Facebook are projecting that the Instagram portion of the company should earn close to $3.2 billion in 2016. The company derives most of its revenue from advertising.
The Instagram App got its start when Systrom was in college. He developed an app for his fraternity brothers to use to share pictures. The app he developed was a hit when he showed it to his friends, and he introduced it to a group of investors, whom at the time, were looking for new apps to invest in.
This was truly a situation of being in the right place at the right time. The app that he created was called Burbn and became the foundation for Instagram.
How the Company Started
Systrom got hired out of Stanford to work at Google in the marketing department. However, in his spare time, he enhanced the Burbn app. This app had many features, but when he partnered with Krieger, they both made the decision to limit functionality to keep it simple for users.
The next iteration of the software became the Instagram app. They derived the name for the app and the company by using the “gram” part for something that is capable of recording your life. The “Insta” part was just something they added because it was catchy and easy for people to remember.
The company received three rounds of funding. The first round, the seed capital came in 2003 in the amount of $500,000. The second happened in 2001 for $7 million by Benchmark. The third, in 2012, was by several investors, led by Sequoia Capital. The amount was $50 million.
The company did not have too many roadblocks in its path. It was largely a story of being in the right place at the right time and having a vision. This is not to say they didn’t spend long sleepless days and weeks working to make their creation right.
Systrom believes media outlets do companies like his a disservice when they portray them as an instant success. While Instagram may not have run into too many stumbling blocks, it wasn’t developed in a day. There was much human capital involved in the process.
Why it Works
If you had to break down what made them a success, is that they stripped out many of the functions that were in Burbn to keep Instagram light and easy to use. It’s a simple interface and one that allows you to share what people love, i.e., pictures and videos. The company gained over one million users in its first year alone.
The app has a series of filters that can be applied to the pictures taken. These can be sent immediately without the need for external programs like Photoshop, etc. Instagram continually adds new filters for users to apply to their pictures.
Instagram users are using the app to capture their lives as a form of storytelling. In this sense, it is very much like the Polaroids in days of old. It’s a modern take on an old classic, without the chemicals. The Instagram app is not just about sharing photos. It’s about chronicling your life.
They obviously did something right to garner the attention of Mark Zuckerberg of Facebook. He bought the company for $1 billion, in spite of all the industry criticism. It turned out to be a great strategic move.
Promotion is largely via word-of-mouth. When someone is sent an Instagram picture, they are curious about what the sender used to take and send the image. When they find out it is the Instagram app, they explore this for themselves which often results in a download.
Another subtle method of promotion largely outside the control of the company is marketers who sell techniques on how to use Instagram as part of a sales process or funnel.
Anyone who buys into the marketers’ information will likely download the app in order to apply the techniques. As they use the app themselves, people who they send photos or videos to may also get curious about the process.
Instagram has allowed a small number of large advertisers to purchase video ad space. It’s believed these ads will run for 30 and 60 second spots. This is more time than videos users are allowed to post which at the time of this writing, are limited to 15 seconds.
Cnet.com editors give the Instagram app high marks, 9 out of 10 or 4 ½ stars. It scored the lowest on features (8 out of 10). It should be noted that Instagram prides itself on keeping the app lean and easy to use.
PCMag.com also gives Instagram a high rating of 4.5 stars (out of 5). This is considered excellent by the company. They mention how Instagram is constantly improving while at the same time easy to use.
Lessons Learned By The Business
- The company makes it a point not to take on too much. They do what matters to them and their customers. This allows them to be laser-focused in their pursuits. This core strategy led them to strip out much of the functionality of Burbn to keep it functionally easy for users.
- Both partners have a tenacious passion for what they do. They live, eat, and breathe Instagram.
- The company believes in learning and keeping skills up-to-date. This is extremely important in technology as it changes so rapidly. It also adds value for customers as a company can take advantage of information and technology when it makes sense for the customers.
- Shift gears if what you set out to do does not work as planned. If you find out from users that they wanted something different than what you are delivering, don’t try to make them like what you have. Give them what they want.
- The company tries to do more with less as much as possible. This is reflective in the fact that they are a multi-billion dollar company, and they operate with only a few staff members. Hire when you need to but don’t go on a hiring binge just because you have the resources to do so.
How Other Businesses Can Learn From This
Build up a user base. Find hungry users and help them solve their problems or wants. Too many companies focus on the product first and then try to find an audience. This is an uphill battle at best. Systrom is quoted as saying, “Far too many startups are technologies in search of a problem.”
Can you explain what you do in a relatively short period? If it takes several minutes to describe your product or service, you may have to rethink your strategy. Instagram does one thing really well, and everyone knows what that is.
The app allows users to take photos and use filters on those photos immediately without having to rely on third-party graphics programs.