Instagram: 4 lessons in digital disruption
MANILA, Philippines - The $1-B sale of mobile phone sharing app Instagram shook up traditional business models. Digital, after all, "has the ability to disrupt," says Hans Roxas-Chua, co-founder of the Internet & Mobile Marketing Association of the Philippines (IMMAP), in Rappler's TalkThursday on April 12.
Traditionally, a company might sell a product or even advertising space. Instagram was a free app with relatively no visible ads on its site but has more than 30 million users.
Roxas-Chua pointed out that perhaps the company's main formula for making money was not to sell products but to cash in when it eventually sold itself.
He explained that Instagram "would have a more difficult time finding a business model to monetize," in the same manner that Facebook would have a tough time incorporating Instagram into its business model.
Instagram's founders are overnight millionaires. And for one percent of its estimated IPO value, Facebook was able to take out one of its biggest competitors. The deal could be considered beneficial all around.
The new model certainly ended up as good news for the venture capitalists who invested $50-M in Instagram the week before the buyout.
While historically many venture capitalists have held their investments for years trying to build up a company's value, Instagram's lucky venture capitalists doubled their money in days.
Looking at the whopping sum Facebook paid for a year-and-a-half old company has to make other individuals think about starting their own companies.
4 lessons from Instagram
In recent years, consumers have stopped buying hard tangible products such as CDs, newspapers and boardgames, and turned more and more to the Internet for their music, reading and entertainment needs.
But going digital isn't a be-all, end-all solution.
Roxas-Chua noted the importance of Instagram's timing, platform and emotional appeal.
Among the factors that led to Instagram's success, Roxas-Chua told Maria Ressa on Rappler's #talkthursday, were the following:
1. Anticipating mobile as the future
Facebook is a web first photo sharing service but Instagram is a mobile first company. People access Instagram through their phones, and Roxas-Chua pointed out that's where consumers and businesses are moving.
"If you see most of the growth coming from mobile you need a company that has a mobile first perspective… it was maybe a way for Facebook to ensure it maximizes its chances of expanding into the next frontier," he said.
2. Having a soul, a product people care about
"Facebook didn't seem to have that kind of emotional connection. It didn't have the soul of Instagram," said Roxas-Chua. He noticed that people using Instagram take more time to find the right angle and the right filter. In the end, they are more invested in the product. "It's more emotional," he said.
Facebook could have built its own mobile photo sharing app but in buying Instagram it also bought the organic community that rose up around the trendy app. "It's like taking over a community," he said. Though Facebook still has to win over that community, it's unlikely all 30 million-plus members will take up and leave entirely.
3. Catching the popularity wave before it swells
"It's also timing," admitted Roxas-Chua, "They had a good quality product and they reached critical mass earlier than other apps."
4. Knowing who values you most
Instagram was given a price tag on the open market. The venture capitalists who invested just $50-M the week before the deal, believed the company was worth $500-M.
But in the end, it didn't matter how valuable Instagram was to the free market. What mattered was how valuable it was to Facebook.
In considering its biggest competitor, Instagram found its most important investor. - Rappler.com