Textbook Network Effects: How Instagram Achieved Instagrowth
Instagram is the textbook example of how a business initially attracts users in the absence of network effects and quickly grows by leveraging those network effects.
Instagram is widely known for its “hockey-stick” growth ($0 to $1B valuation in two years!), but it is the textbook example of how a business grew so quickly with direct network effects.
A product displays network effects when more usage of the product by any user in the network increases the product’s value for other users in the network.
Suppose you developed a product that you believe has strong network effects. I’m sure this is the first question you’ll ask; if the platform is most valuable with other users on it, then how do you attract those initial users to use it? This classic chicken-egg problem has recently seen many innovative solutions in this digital age.
One way Instagram tackled this problem was to mitigate its adoption risk by providing standalone value. In other words, provide a feature that is useful if only ONE user were using your product. In a time when multiple photo apps provided cool photo filters for a small fee, Instagram provided them for free. Many of the initial users were initially attracted to Instagram because they could easily apply their favorite filters and then send to family and friends via facebook, twitter, or email for free.
Of course, the hope was that users would share on Instagram’s network, which they eventually did as more of a user’s family and friends adopted the platform. Many of those early users came for the tool and ended up staying for the network.
Another key way Instagram attracted users en masse was simplicity. Instagram was the personification of simplicity: not over-engineered, not too many features, no confusion. It focused on doing ONE thing extremely well. Within 5 seconds and a few straight-forward taps, you have shared your photo with your friends in the way you want it.
These two strategies created and accelerated this snowball at the top of this digital mountain. The network effects determine the slope of this mountain. Each additional user provided additional value to the network. Instagram’s user base became its strongest recruiters. Eventually, the mainstream user simply had to be on Instagram to keep up with their closest friends. In other words, Instagram was able to generate natural virality and maintained it by staying true to its original intent, focusing on simplicity and user experience.
Instagram’s meteoric rise is obviously only the beginning of its story. Facebook’s purchase of Instagram was both smart and fitting; together they are learning how to monetize these mobile platforms with strong network effects. Will Instagram sufficiently capture enough value it initially created?
Student comments on Textbook Network Effects: How Instagram Achieved Instagrowth
I enjoyed reading this post. I completely agree that simplicity and a strong product (filters) drove initial growth. I think another contributing factor was that users could essentially re-set their friend group. While facebook users have hundreds of friends and their news feeds are cluttered with everything from political rants to cat pictures from friends they can barely remember, Instagram allows users to more carefully select those they want to follow. It will be interesting to see how their monetization strategy works out. The ads on Instagram feel a bit intrusive because they take over your entire phone screen and leave the user feeling tricked into even looking at the advertisement. I wonder if they should have taken an approach similar to pinterest where advertisements are curated and are more difficult to differentiate from regular pins.
This is a great post and I really enjoyed the perspective that IG was able to provide standalone value. The fact that the platform has value even without the network effects is really powerful. I am curious as to your thoughts on how the tie-up with Facebook will allow IG to capture value. Ads have started popping up on my IG feed but I’m not sure how users will react to this. It certainly makes sense from a business perspective, but will this in any way weaken the network effects that IG has built up? Or do we think that the network is strong enough to withstand any backlash?
This was a great read – thanks for sharing. I agree that Instagram had hockey stick growth and a meteoric rise in users and engagement in a very short period of time. However, I think there were other apps out there that also offered similar functionality for free (e.g. Hipstamatic). These other competing apps eventually fell to the wayside for the reasons you mentioned, and also because the quality of the Instagram app and product was so much higher than the rest. I read previously that Instagram actually worked with professional photographers to develop the limited filters they had, and also had strict “community management” to ensure the content on the platform was appropriate. The easy integration with Facebook was definitely a key factor in Instagram’s success as well. I wonder whether the acquisition strengthens Instgram’s network effects or detracts from them, as Facebook is now implementing advertisements on Instragram which would likely turn people off of the platform.
It’s crazy to think back to Instagram’s debut on the digital scene. I still remember taking a test selfie photo and accidentally posting it on my Insta-feed! I believe Instagram has already begun to capture the value it initially created. For example, Instagram currently has sponsored ads that appear in an individual’s feed and takes a margin from the advertiser when users click on the content. Furthermore, Instagram has created opportunities for other companies to monetize and capture value. “Like to Know.IT” allows users with large followings to make money by linking items in their pictures to products available for purchase.
Great example of how quality, and subsidizing users made a difference in user adoption, and ultimately beating out other platforms with similar functionality. I think another important strategy Instagram had when it launched was to generate a lot of hype around the app by getting influential people to be amongst the first ‘posters.,’ as well as getting influencers to spread the word about the app. I think getting the word out in this way made a huge difference, in addition to capitalizing on Facebook’s and Foursquare’s already existing networks by integrating with those platforms.