Instagram was everything FB wanted to be but could not become

The idea of Instagram — a short summary

Systrom one of Instagram’s co-founder studied at Stanford and for a while abroad in Florence, Italy. He’d always liked nice things — espresso done just right, fine clothes, old bourbon (Instagram's original name was ‘Burbn’, but his photography professor was the one who inspired him, by making him give up his fancy camera for a simpler device, one that only shot blurry images in square frames. The experience taught him to embrace imperfection; that “just because something is more technically complex doesn’t mean it’s better.

In 2009 he built?Burbn, an app for people to find their friends and go out. After V.C. investors pushed Systrom to find a co-founder, he and Krieger — a former Stanford classmate and a more skilled engineer — soon turned their focus solely to photo sharing, a feature Burbn lacked. Most cellphone cameras were pretty crummy, so they would provide filters to make the pictures prettier. In 2010, that app became Instagram.

Copying features does not always work

Facebook tried to copy Instagram features like IGTV through its own FB videos but it failed to catch the imagination of its users. It also unsuccessfully built FB Camera to rival Instagram’s photo sharing and filter game, but yet again failed. FB through its ‘poke’ feature unsuccessfully tried to get in on the growing success Snapchat’s model of sharing frequent pictures as messages was having at that time.

Instagram on the other hand was able to successfully build and scale the stories feature which was pioneered by Snapchat at that time. FB seeing the success of disappearing photos, quickly introduced stories on the big blue app (As it is referred to by FB employees) but it’s users did not take to it, Instagram took more time and built the feature keeping it user base in mind and has seen roaring success. Instagram had identified a problem with its current offering — people were vetting the photos they were putting on Instagram extremely carefully as the photos would stay indefinitely on their profile, a permanent record of sorts. This put a lot of pressure on users and was impacting the fun quotient of the app. Introducing stories where the uploaded photos would disappear after 24 hours thus solved for the problem. While FB was not facing this issue because its users were not using the platforms to share photos and thus did not really require the stories feature.

“Don’t fix what isn’t broken” — Said no FB employee!

Who to sell to — Twitter or Facebook?

In early 2012, Twitter had been aggressively courting Instagram for a potential acquisition. Instagram’s founders, Kevin Systrom and Mike Krieger, were wined and dined over sushi and breakfast at the St. Regis hotel. Twitter even put together a term sheet to acquire them for 7% to 10% of its stock, worth $500 million to $700 million.

Systrom told Jack Dorsey, his friend and then-executive chairman of Twitter, that he couldn’t sell now -he wanted to make Instagram so big, it would be too expensive to be acquired by anybody. In reality Systrom feared he would not have autonomy to run Instagram. It was then Mark Zuckerberg, a fellow Stanford senior and someone Systrom greatly admired, came around and made the then astounding offer of $1B. In addition to the stock and mammoth engineering resources which FB would bring in Zuckerberg also offered ‘independence’. This convinced Systrom that FB would be the right partner and ended up selling to them.

When Instagram was acquired it accounted for?0%?of FB’s revenue.?Bloomberg?reports that Instagram generated a whopping $20 billion in ad revenue in 2019, which would represent nearly?30%?of the $69 billion in ad sales that Facebook posted. (Facebook also had a little over $1 billion in other revenue.) When Facebook first bought Instagram for around $1 B, Instagram’s revenue was precisely $0.

Instagram was probably one of the best moves FB made and as the big blue app is losing users the Instagram juggernaut seems to be going strong. Independence promised by Zuckerberg did not last long as Instagram grew in scale so did the FB’s shadow on them. Systrom and Krieger abruptly resigned from Instagram in September 2018. Their exit has been widely viewed as the end of Instagram’s pseudo-independence from its parent company. Systrom and Krieger left Instagram at a time when it is more important to Facebook’s future than ever.

This is one of the most fascinating M&A tales of our time. As consolidation in the tech sector grows we are bound to see more of such stories come out in the future.

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Read more about it from the awesome book No Filter, written by Sarah Frier

Follow?Amatya Agarwal?on LinkedIn for more such insights.