Tatiane Amaral
MG 488: Ecommerce & Web Design, SPRING 2015 Professor
Jung Wan Lee, Ph. D.
Case study: Instagram | 2
INTRODUCTION
Instagram is usually referred to as a mobile social network, but in reality they are much
less than that since social networks just collect about specific things, Instagram chose to focus on
photos, and was determined to do it in a world-class manner. The weakness they identified in the
current user experience was that the process was much to slow and cumbersome. They realized
the most important thing to people was how quickly they could complete the process. Optimizing
how photos were uploaded sped up the process and greatly enhanced the user experience.
Instagram quickly became known as the fastest and easiest way to take and share mobile photos
with your friends and family. For an e-commerce business, Instagram has a very colorful future.
Early indications show that advertising across Facebook and Instagram is more powerful than
running a standalone campaign on either of the two platforms alone.
This case study will analyze the growth of Instagram since Facebook bought it and how
companies are becoming able to use e-commerce in a unique, creative way, and what the future
holds for this startup.
Case study: Instagram | 3
TABLE OF CONTENTS
INTRODUCTION.................................................................................... 2
BACKGROUND .............................................................................. 4
BUSINESS ANALYSES ................................................................................. 4
INSTAGRAM SWOT ANALYSES................................................................................... 7
 STRENGHS
 WEAKNESS
 OPORTUNITIES
 THREATS
STRATEGIC BUSINESS MANAGEMENT: SUGGESTIONS FOR FUTURE
GROWTH................................................................................ 9
STRATEGIC BUSINESS MANAGEMENT: THREATS AND
OPPORTUNITIES................................................................................ 11
CONCLUSION.................................................................................... 12
REFERENCES.................................................................................... 14
Case study: Instagram | 4
BACKGROUND
Like many before them, Mike Krieger and Kevin Systrom the co-founders of Instagram
hatched their collaboration in a coffee shop. Their messaging app was called Burbn. It let friends
say where they were and share a few photos. But early on they discovered that photos were what
hooked people. They quickly built a simple photo app and selected 100 people. This time,
instead of asking their friends to try it, as they did with Burbn, they reached out to two target
groups, designers and reporters. They launched Instagram on October 6, 2010 and attracted
100,000 users the first week. It has been among the top 10 most downloaded apps ever since.
Just over a year later, Facebook and Twitter began jockeying to buy Instagram. In April
2011, after reportedly turning down acquisition offers by each of the social media giants,
Systrom and Krieger closed a $50 million round of funding led by venture capital firm Sequoia.
The plan was to stay independent, but when Mark Zuckerberg received the news about the
funding, he asked to meet with Systrom. The Facebook CEO and founder raised his offer to $1
billion, twice what Twitter had offered. Just as important, he promised autonomy. Systrom and
Krieger decided to take the deal.
BUSINESS ANALYSIS
What began as two friends with a dream has grown into a global community that shares
more than 70 million photos and videos a day with more than 300 million accounts. It took just a
few discussions between Mark Zuckerberg and Instagram CEO Kevin Systrom to reach an
Case study: Instagram | 5
agreement. At the time of the acquisition, which was during spring of 2010, Instagram only had
30 million users, and now it has 300 million.
Was the deal a risk for Facebook? Possibly. But that acquisition is starting to look like a
bargain now that Citigroup speculates the app could be worth $35 billion, which, along being 35
times the price it was acquired for, is $16 billion higher than the most record estimate by
Citigroup. Research also shows that Instagram accounts for roughly 16 percent of Facebook’s
$221 billion market value, according to The New York Times.
The increase in valuation has led Citigroup analysts to raise the price target for Facebook
from $86 to $91. Analyst Mark May has asserted that the estimate, which was based on
assumption regarding user growth and monetization, is conservative. But to put things in
prospective, that value puts Instagram in the same league as Kraft Foods ($37.2 billion market
cap) and American Airlines Group Inc., ($36.4 billion market cap).
Citigroup’s new projection inspired tech investor Eric Jackson to assert that Zuckerberg’s
decision to sweep up the app might be “the best Internet acquisition ever.” And he is not far off;
the company is growing at a rapid-fire rate. Instagram now boasts a bigger audience than twitter,
and a higher worth as well. Twitter’s current market cap hovers around $23.3 billion, according
to Seeking Alpha.
There is another key reason for Instagram’s surge in success; its users, which share more
than 70 million photos and videos daily, are more engaged than those on Twitter or Facebook,
according to a Forrester study. The firm’s research found that for every 1 million Facebook fans
collected by more than 2,500 brands, each for those posts received only about 700 likes,
comments, and shares. That ratio was roughly 800 interactions per 1 million followers on
Twitter. And then were was Instagram, which blew other social network out of the water with 58
Case study: Instagram | 6
times more engagement per follower than Facebook, and a whopping 120 times more
engagement per follower than Twitter.
Clearly, there is an immense opportunity to capitalize on Instagram’s marketing potential
in this regard. Analysts say the $35 billion valuation depends on the app’s efforts to generate
more money.
“While Instagram is still early in monetizing its audience and data assets, and its financial
contribution to Facebook is minimal today, Citi group believes that it is quickly gaining
monetization traction, and would contribute more than $2bn in high margin revenue at current
user and engagement levels if fully monetized,’’ Citi analysts wrote, according to The New York
Times.
Instagram faces very little competition from similar social networking apps. Other
messaging apps that share photos, like WhatsApp and SnapChat, have traditionally depended on
Case study: Instagram | 7
small download fees and selling stickers to generate money, meanwhile, it is easy and intuitive to
insert small mobile ads in between Instagram photos. In his note, May wrote, “Instagram is at the
early stages of rolling out advertising, but we believe brands have and will find it an effective
channel.”
Instagram’s story is rich with questions and implications. What would the app be worth if
it was still independent? Did Systrom sell too soon? A number of experts have adopted the view
that Facebook’s buyout of Instagram indicates that the technology bubble is finally bursting. But
given Instagram’s spike in estimated value and the collective speculations from investors that it
is a special time to capitalize on the social media app’s potential, it looks like the bubble may
actually be ballooning.
Adding to the intrigue around this eyebrow-raising $35 billion valuation, Facebook has
yet to disclose any details about Instagram’s revenue. But Citi’s analysts forecast that in 2015, it
could generate $2.7 billion and reach 420 million monthly active users.
SWOT ANALYSIS
STRENGTHS

Innovative & creative platform
Case study: Instagram | 8

Unique platform: Not a lot of competition

Provides images & identity: Visually appealing

Connection with other social networks: Facebook, Twitter, etc.

Free application: no cost, available for both Apple & Google Play stores

Attractive to a very diverse audiences

Flexibility: Immediate uploading

Rapid growth

300M Monthly Actives
2.5B Likes Daily
70%+ People Outside U.S
30B+ Photos Shared
70M Average Photos Per Day
WEAKNESSES

Mobile platform: Dependent on wireless or cellular data service

Only for those who have android or IPhone

Limited in commenting & 'liking'

Requires high quality photos; prone to bad photos

Required following to view content

Requires application download

Have to manually post content: no schedule content

No revenue
OPPORTUNITIES

Continuing advancement of smartphones

Targeting upcoming generations
Case study: Instagram | 9

Expansion of the hashtag system (#)

Instagram specific photo campaigns

Instagram 15-seconds clips with audio and filters

Form of media relations

Photo and Video advertisements on Instagram

Revenue from advertisements
THREATS

Opportunity for bad PR

Poor photos/uninteresting photos

Difficult to manage in large organizations

Photo rights & usage issues

Photo and video advertisements on Instagram: Users might find them disruptive.

Advertisement competition
STRATEGIC BUSINESS MANAGEMENT: SUGGESTIONS FOR
FUTURE GROWTH
“If people see super spammy ads in their feeds, it is going to be destructive to the
experience.’’ That was Emily White, Instagram’s director of business operation, last may
discussing the service’s business prospects in Fast Company’s recent profile of the startup. With
150 million users now on Instagram, brands are lusting to advertise on the addictive photosharing platform. But White, like her boss, CEO Kevin Systrom, had resisted the temptation to
implement traditional ads until this year.
Case study: Instagram| 10
This year, the company announced that it would begin introducing photo and video
advertisements on the services, its first attempt to generate revenue since Facebook acquired the
startup for $1 billion. Wary of a potential backlash, Instagram was careful to downplay the
impact the move will have on the user experience. "In the next couple months, you may begin
seeing an occasional ad in your Instagram feed," the company said in a statement, which
promised only "beautiful" content from a "handful of brands." The challenge for Instagram will
be to deliver on that promise, maintaining a high bar of quality so its ads don't become
destructive, a challenge that becomes significantly harder at scale.
The company plans to roll out the ads slowly, at first only in the U.S. Users will soon
start seeing "photos and videos from brands they don't follow," but Instagram also says they'll
have the ability to hide an ad if it's not of interest, perhaps similar to how users can skip ads or
mark them irrelevant on YouTube and Hulu. "Our aim is to make any advertisements you see
feel as natural to Instagram as the photos and videos many of you already enjoy from your
favorite brands," the company said.
The goal, the company said in its statement, is to make its ads "enjoyable and creative in
much the same way you see engaging, high-quality ads when you flip through your favorite
magazine."
Systrom believes that there's no reason the advertising can't be as luscious as the content,
saying that Vogue magazine, a rich, glossy publication where that virtue is certainly evident,
could be its model.
Systrom asserts that brands are more than capable of producing compelling mobile
advertising. "There are a lot of brands on Instagram," he says, "and it turns out that Instagram is
Case study: Instagram| 11
an efficient way for them to get their messages across. We can build tools that let them do that
more efficiently. That's a very big business."
Like it was mentioned earlier, Instagram has a colorful future in the e-commerce
business, now that they finally started they need to stay focused and be smart.
STRATEGIC BUSINESS MANAGEMENT: THREATS AND
OPPORTUNITIES
The problem, of course, is that advertisements rarely feel natural or even welcomed.
While there are certainly glowing exceptions like Red Bull, Nike, Starbucks, to name a few,
many brands are simply not good at content creation, as any user of Twitter or Facebook knows.
It's why the company waited so long to implement ads, preferring to keep the service pure while
promising to invent a better business model. "The last thing we want is to plop in banner ads,"
Systrom says.
Systrom says that he is skeptical that these users will grow to love Instagram's ads and
not find them disruptive. “Again, I've heard this promised before, even from Instagram's parent
company, and in a mobile setting, with limited screen real estate, ads can feel all the more
intrusive” he says. The fact that Instagram is allowing users to "hide" them and "provide
feedback about what didn't feel right" (euphemisms for users hating the ads) assumes that there
will be ads that users find destructive to the experience.
Even with some threats there are also great opportunities in welcoming adds on
Instagram.
Case study: Instagram| 12
Two of Instagram's brand-friendly tools are its video and Explore features. Instagram
video, introduced in late June of 2014, offers advertisers the ability to create 15-second clips
with audio and filters, similar to Twitter's Vine service. On the day the feature launched, brands
such as Lululemon and Burberry had already jumped at the opportunity to create short bites of
video for the platform. And Systrom calls Explore, the section of the app where users can
discover new content creators to follow, an "untapped gold mine." Channeling his inner Anna
Wintour, he envisions packaging narratives that users "can tune into anywhere at any time." The
first example he cites is a curious and slightly naive one: a behind-the-curtain peek at life inside
North Korea. While it's hard to see any advertiser jumping for that opportunity, it's a short hop to
more brand-friendly stories such as a look at the pageantry surrounding the World Cup (cue Nike
and Adidas bidding war) or behind the scenes at the Oscars. "I absolutely see that as part of
Instagram's evolution," says Julie Bornstein, Sephora's chief marketing officer for digital, adding
that Instagram delivers a more engaged audience than other platforms like Twitter.
Users can also take advantage of hashtagged keywords to create the equivalent of their
own single-topic magazines based on what they're into. Instagram could easily start selling those
words to brands, so that if you have a yen for high-end shoes, J.Crew could seamlessly drop in
slick images of what they just so happen to offer. It's the app analog to the U.S. magazine
publishing industry, which still commands $40 billion a year in revenue.
None of these moneymaking ideas are completely novel. Instagram's peers Twitter,
Tumblr, Flipboard, BuzzFeed, and others have all toyed with some version of them. But no one
else has what Instagram offers, a singular focus on a narcotic flow of stylized imagery (and now
video).
Case study: Instagram| 13
CONCLUSION
Instagram was built from the ground up as a mobile platform, especially around photo
sharing. They not only identified there was a hole in the market, but they filled it and shoved it
right in the face of Facebook showing them how much better Instagram was than Facebook at the
mobile game. Zuckerberg knew the great value of the company, pulled the trigger and bought the
company knowing Instagram was a growing problem for them.
The success of any product or service greatly depends on people actually discovering it.
Instagram beautifully leveraged the major distribution networks of today, Twitter, Facebook and
Foursquare to quickly gain user traction. Take a picture, instantly shoot it out to your friends and
followers, people click on it, see Instagram and think, “that’s cool, I need to use Instagram.”
Since then Instagram has been growing substantially from the $1 billion that Facebook
paid for it, to being worth $35 billion today. Now the next step is to start generating money to its
parent company. Instagram’s next approach is to add photo and video advertisement; however,
this approach may become increasingly difficult to manage. Quality is likely to suffer, not every
ad will be a beloved work of art. Some of them will even feel like (gasp) spam! Instagram
however, is a business, and the company is finally acting like one rather than continuing to live
off Facebook’s earnings. It is time for Instagram to grown up.
Case study: Instagram| 14
REFERENCES
Borow, J. (2013, August). How Facebook Is Already Profiting From Instagram. Advertising
Age. Retrieved from:
http://adage.com/article/digitalnext/facebook-profiting-instagram/243515/
Elliot, N. (2014, April). Instagram is the King of Social Engagement. Forrester. Retrieved from:
http://blogs.forrester.com/nate_elliott/14-04-29-instagram_is_the_king_of_social_engagement
Fox, Z. (2012, May). How Instagram Took America by Storm [INFOGRAPHIC]. Mashable.
Retrieved from:
http://mashable.com/2012/05/06/instagram-america/
Gelles, D. (2014, December). Citigroup Says Instagram Is Worth $35 Billion. The New York
Times. Retrieved from:
http://dealbook.nytimes.com/2014/12/19/citigroup-says-instagram-is-worth-35-billion/?_r=0
Harison, K. (2014, May). 5 Ways To Use Instagram To Promote eCommerce. Forbes. Retrieved
from:
http://www.forbes.com/sites/kateharrison/2014/05/23/5-ways-to-use-instagram-to-promoteecommerce/
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Hempel, J. (2014, May). The photo-sharing social media service has a fast-growing, hyperengaged user base that advertisers love. Now it just needs to figure out how to make money for
corporate parent Facebook. Retrieved from:
http://fortune.com/instagram-is-ready-to-take-its-shot/
Kirkham, E. (2014, December). You Add $117 to Instagram’s Value, Says Citigroup.
GoBankingRates. Retrieved from:
http://www.gobankingrates.com/personal-finance/add-117-instagrams-valuesays-citigroup/
Luckerson, V (2013, September). Instagram Ads Are on the Way. Time. Retrieved from:
http://business.time.com/2013/09/09/instagram-ads-are-on-the-way/
(2014, December). Instagram CEO & Co-Founder Kevin Systrom Sits Down with CNBC's.
CNBC. Retrieved from:
http://www.cnbc.com/id/102256928#.
300 Million Now on Instagram
http://blog.business.instagram.com/tagged/instagram-for-business
Ha, A. (2012, March). Kevin Systrom Drops A Few Hints About Instagram’s Business Model.
TC Crunch Network. Retrieved from:
http://techcrunch.com/2012/03/21/kevin-systrom-fm-signal/
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