How Instagram Is The Future Of Startups

instagram money

Photo: @_nana on Instagram

Instagram, the popular iPhone photo sharing service, announced some very impressive numbers yesterday at TechCrunch’s Disrupt conference: it now has 9 million users, almost as big as Foursquare in half the time. This shows why and how Instagram is the future of startups:

  • Extreme capital efficiency. Instagram has 5 or 6 full-time employees. For such a huge, fast-growing service, that’s just crazy. We keep hearing about how the cloud, open-source software, etc. makes startups much cheaper and easier to run, but this effect seems nearly impossible to overstate. Even a few years ago it was impossible to imagine a company that could serve millions of people with less staff than it takes to run a Chipotle franchise.
  • Breakneck growth thanks to social sharing platforms. Kleiner Perkins partner and early Zynga investor Bing Gordon just tweeted that he’s declaring “‘Zuckerberg’s Law’: [the] quantity of social sharing doubles every 12 months. [The t]rend has held at [Facebook] for 4 years.” Whatever the numbers, it’s absolutely clear that the new social platforms enable breakneck growth. Instagram is growing twice as fast as Foursquare which is growing faster than Twitter did which grew faster than Facebook did. This is because as social platforms grow, the amount of sharing that goes on them grows exponentially, which means new services can be distributed even faster. And you can’t even find Instagram photos on Google: you can find the app’s site, but if you search for a particular user’s Instagram page, you can’t find it on Google. Google was once the overwhelmingly important platform for a startup’s growth, and no it’s not just #2 but utterly irrelevant to the fastest-growing notable startup.  
  • Audience size. Instagram is only on the iPhone. It’s not on Android, and barely on the desktop web. This is a product of the fact that the internet is now so big that you can grow huge on just one platform. In time Instagram will spread to other platforms, which will mean staffing up, but the platforms are so big that you can be huge with 5 people and one platform. 
  • It’s not monetizing and that’s fine. Instagram isn’t monetizing. It doesn’t carry advertising, and it doesn’t sell premium features. It will probably do it at some point. And if one day 100 million people use it that will probably be a big business. But the point is that it doesn’t need to monetise right now, and shouldn’t. And from the shareholders’ perspective it’s fine: given how little it costs to run, the option value of Instagram finding a business model down the line is quite attractive.

Given all the chatter on the return of a tech bubble, people who believe we’re in a tech bubble need to account for the fact that startups are a radically different breed now than they were just a few years ago, let alone 10+ years ago.  

This post was published as part of BI Research, a new industry intelligence service from Business Insider. BI Research provides real-time research and analysis on the technology industry. The service is currently in beta and is free. To learn more and sign up, please click here.

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