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?
As Director of Bam Creative, and Chairperson of the Australian Web Industry Association, Miles spends his time managing his business or speaking about managing businesses. Recently awarded as one of the top Western Australian entrepreneurs under 40 years old, Miles can also be found writing at his blog.
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