When Facebook acquired Instagram in April 2012, it did so at a valuation of a billion dollars, consisting of cash ($300million) and Facebook stock, an acquisition, which immediately made headlines around the world.
Instagram had only been launched into the App Store in December 2010, rising from idea to $1billion price tag in under 18 months it represents the stereotyped Silicon Valley success story. So, how did this happen?
Systrom and Krieger regularly saw each other and shared ideas at a local coffee shop in San Francisco, leading to Systrom asking Krieger to join him when he established Burbn in 2010. Systrom had already raised over $500,000 – $250,000 from both the prominent Silicon Valley V.C. firm Andreessen Horowitz and Steve Anderson, of Baseline Ventures.
Burbn which was based around the idea of social check-ins was in trouble from the start, entering a red ocean of start-ups including Foursquare. So, once Krieger was on board Systrom suggested they ‘pivot’ and focus on a new idea. Crucially they dumped the slow moving web app code of Burbn, and decided to go native, jumping on Apple’s iPhone 4 horse.
“Instead of doing a check-in that had an optional photo, we thought, Why don’t we do a photo that has an optional check-in?” said Systrom.
They proceeded to study every single popular app in the photography category of the app store.
Systrom and Krieger spent the summer of 2010 sketching out ideas for their new app by hand in notebooks. It was during this time, that Systrom’s girlfriend Nicole would mention to him that she’d be reluctant to use his new app, as the photos would never be as good as the ones taken by a mutual friend. When Systrom pointed out the friend just put filters on them, Nicole replied “Well, you guys should probably have filters too, right, then?’.
That day, Systrom got online and figured out how to make a filter, creating his first that evening.
Once they had filters, they set about launching the service in eight weeks. They created the name by combining ‘instant’ and ‘telegram’.
Systrom noted that Hipstamatic was super-fun and came packaged with filters, but wasn’t very social. He believed there was a sweet spot between Hipstamatic and Facebook, which is precisely where he landed Instagram.
“From the start, Instagram was a simple application and a joy to use” Jack Dorsey, Twitter Co-founder remembers, “I was blown away by how much detail they put into the experience.”
Instagram launched on 6 October, 2010, with users able to share on both Twitter and Facebook, among others. On that first day, the app had over 25,000 users, and it grew exponentially from there. By December 2010 it had one million registered users, increasing five fold to five million by June 2011, before doubling again to ten million by September 2011. In April 2012, it was announced Instagram had 30 million accounts set up.
“We spent like $60,000 to launch our first version of Instagram. Sixty-K. We had raised 500 [thousand dollars] and we were kicking ourselves the second day….not after we raised, but after things started taking off. We were like, “We have all this money left over and we got this far. It turns out you can bootstrap yourself with Amazon Web Services. You need two engineers these days to do things well. And it turns out that you can get a lot done on a shoestring budget.”
Other than the growth numbers, what drew Roelof Botha, of Sequoia Capital, to invest $50 million in Instagram, “A lot of hot start-ups were losing users as quickly as they get them, like people who get on a bus and then off in the back” says Botha, ‘But they retained their users…stickiness”.
Instagram had not earned a cent in revenue, but had an engaged user base that was growing exponentially, engineering co-founders who were already well known throughout the Silicon Valley power sphere and, arguably, posed a real threat to Facebook’s existing business (at a time Facebook was having deep difficulties in moving to the mobile platform). That last point explains why it was worth $1billion to Mark Zuckerburg.
That Instagram has continued to enjoy tremendous growth, 150 million active users after only three years of existence, suggests that, if anything, Zuckerburg snagged a bargain.
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