Build a Billion Dollar App

The news is all over the web; that social network approaching their IPO, have spent a little coin buying a smaller social mobile app. If you haven’t heard, Facebook have just spent one billion dollars buying Instagram.

That’s a tidy sum of money indeed.

Even tidier when you find out there are only a dozen employees, and they haven’t made a dollar in the traditional product or service sense – it’s free to use and there isn’t even any advertising.

I wrote about Instagram in Issue 592 of the SitePoint Tribune just over a year ago. The article highlighted that they had managed one million users and $20 million of funding in just their second month. Instead of writing that piece, I should have actually been flying to San Francisco and asking for a job!

So, what’s the trick to creating an application and selling it fifteen months later to the world’s largest social network for a cool billion? Well there may be no easy checklist, however, here are a few pointers.

Build something simple. Instagram, Twitter, heck, even Facebook when it started, were simple in their offerings. If users can’t explain what it is in a minute to a friend, they’re not going to get it themselves.

Borrow from others. Sure, Instagram was fairly original in their approach, but it wasn’t like there wasn’t other photo sharing sites before 2010. They coupled photo sharing with social (just like Flickr) and then they added mobile to the mix.

Get great press early. Within weeks of their launch, Instagram had enjoyed really good reviews from influential media who raved about their product. They pitched their product to the right writers and influencers within days of launching it.

Surround yourself with smart people. Instagram networked with folks like Twitter co-founder Jack Dorsey early, meaning they were on the radar of those who watch people like Dorsey. Don’t underestimate the power of ‘who you know’.

Build something attractive to other businesses. What makes Instagram worth one billion dollars is what Facebook was prepared to pay for it. They saw the value in Instagram as a complementary product, something that will work in with their own offerings well (Facebook is a larger photo sharing site than the Yahoo-owned Flickr by many a mile).

Be fun. Instagram wasn’t just about posting badly taken mobile photos – they had filters, making these medium resolution images works of art with a push of a button, making it fun for their users.

Get serious funding. Instagram showed they were serious by getting early funding which was impressive from the start. Sure, they could have got away with a two million dollar investment, but having a 20 million dollar funding injection shows they were serious form the very start.

Keep it simple. Even now, over a year later, the product is still fairly simple. Sure, they added hashtags and more filters, but the interface and the product pitch remained the same in the simplicity of it.

Avoid cannibalizing. They could have started adding revenue models within a few months, but holding off taking the quick bucks has been an important part of the strategy. Look at Twitter, who didn’t make a cent for their first three years. If they had added advertising or paid accounts at the start, they would have cannibalized their user base, and would have turned early adopters away in droves.

Keep spending in check. Sure, they had nice offices, but they didn’t spend those initial funds on private jets or hiring one hundred engineers. They kept it small and kept their costs fairly low in comparison to others – this makes their balance sheet look very attractive to would-be purchasers.

I look forward to hearing how you’ve raised your own billion dollars by using these tips – remember us little people if you do. Good luck! Oh, and Kevin and Mike (Instagram founders), my original article must have helped that sale price, surely?

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  • jerichvc

    I think instagram team envisioned their ‘company’ to be bought by a bigger player in the industry from the beginning. With that, money is bigger and they dont need to spend years reaching the billion mark. If we use your pointers as criteria, there is only one point every developer should think and that is “How can we convince big players like FB or google or etc. to buy us and our product(s)?” and then the list goes on.

    • TehYoyo

      No way – how would they know that they were going to be bought out for a billion dollars? Even a million dollar deal would have been a dream, I bet. How could they now?

      • Andrew

        How else could they secure a $20 million investment for a business model that makes no profit? It only works in business terms if it’s useful to someone prepared to pay for it, to add it to their own product. Otherwise it generates no income whatsoever, and that $20 million just disappears. Nobody would invest that amount unless a big sale in the not-too-distant future was on the cards. Instagram now seems less like a great app that captured the zeitgeist, and more like a cynical marketing ploy by some well-connected, tech-savvy and already pretty-well-off businesspeople from the start. Good for them, but let’s not confuse this for something it isn’t.

  • http://www.imblog.info Muhammad Adnan

    well written, i will remember you in my billion dollar app deal ;)
    good tips

  • http://www.cpaneldirectory.com Cpanel Directory

    I believe Instagram is the most successful startup ever! I did not know this app, just learned about it a few days ago at Gigaom when FB bought ‘em hahah! I see startups battle for years and no big success…

    I wonder what is their server capacity / storage / technology for all those billions/trillions of photos uploaded in such a short time…

  • http://michaelwhyte.ca Michael

    It is not easy to make a billion dollars….In order of importance I think it is build a great app 1st….and know the right people 2nd….

    Two or three people can build a great app and they can do it for very little money if they do it themselves…but it probably takes a team of a few more people to keep it up and running if it grows significantly, and unless you can convince your business partners and engineeers to work for zero dollars for two years, you are going to need cash….and this is where the “It is who you know” comes in…I believe one of the founders was a former Google employee and worked in Marketing…so my bet is he was well connected with Silicon Valley financiers which helped them to land a nice pile of cash to keep the business afloat with zero revenue coming in and 10s of thousands of dollars a month going out each and every month….it takes great networking and sales skills to sell investors on the idea to risk millions and pay out thousands of dollars each month on the idea that one day they will get their money back many times over…I am sure for every one success like this their must be 9 failures….

    So hats of to the founder for raising the cash, keeping things on track for as long as he did…..I have know idea if his end game was to be bought be a big fish for a billion dollars or if he had a plan to generate revenue from his millions of subscribers…..Today that does not matter as he just made a pile of money for himself and his 12 partners that shared his vision….Awesome….and congratulations…

  • MTO

    Not sure you have to think and work from the start based on what FB or Google may be willing to buy.
    I’m pretty convinced that ‘the simpler the better’ principle is best.
    Instagram created an app very simple, without any fuss, going straight to the goal: take a picture, apply filter, share, period.
    Simple is good. People understand easily, therefore are easily ready to spend money.
    Hence you’re app will attract interest from big companies.

  • http://www.mrsoftsolutions.com mrsoftsolutions

    Simple is good. People understand easily, therefore are easily ready to spend money.
    Hence you’re app will attract interest from big companies.

  • http://lazydada.com Gabriel de Kadt

    Funny – I really liked the idea Instagram when I first came across it but stopped using it for the older but far more instant – and hence usable – relative old-timer Hipstamatic.

    I finally got fed up using Instagram at a party last year by its forced [four] step process: spending a minute or so developing each photo after taking it. Takes the fun out of the party when you’re constantly twitching your iPhone.

    A lesson in marketing/pumping your app – one for MBA students to pour over for a good few years to come.

  • Pete

    Good article!
    I’ve got some sad/bad news for those ambitious nouveau developers out there who fancy themselves as the next Instragram: it’s all old-money baby. The guys are in a Stamford clique that’s impenetrable to others, live close by in the bay area, and go way back to their undergrad days. How else do you get $20m for a no profit outfit?
    Good luck to people who think they can replicate their success, but being realistic, the success of these things is dependent on lots of factors that you simply can’t replicate.

  • http://www.spiraleye.com Timothy

    Good article. But the real question is “What did Facebook buy?” – Why did facebook spend that money? Were they after the technology, the creators, the brand, the customers or the idea? If I want to create a similar sale I would have to wait and see what facebook actually does with Instagram to understand their motivation.