"Instagram’s competitive advantage comes from being first."
Actually, Facebook was first. They've been calling themselves the biggest & best photo sharing app for quite some time now; long before Instagram existed. By this Author's logic, Instagram shouldn't have bothered.
Being first is good, but being great is better. That was the motivation behind the Mac OS, the iPhone, the iPad, etc, right? None of those things were the first in their categories.
I agree with everything you wrote, but couldn't resist adding: being first is good, being great is better, but being lucky is best. After a certain point entrepreneurs have to humble themselves down and accept the fact that sheer luck, or more scientifically, factors that you can't predict or model, play a huge role in the outcome. I'd say most people are overanalyzing this, there's no point in trying to analyze chaos, unless you're literally a theoretical physicist trying to predict an orbit somewhere.
Obviously they weren't the first mobile photo app. They were the first photo sharing app that let you ironically pretend to have a polaroid style camera like a massive bloody hipster. Polaroids became cool again just after the world's supply of polaroid film ran out. "New age fun, with a vintage feel." That's what they were first with, and that's ultimately why they're now rich.
Yeah as mentioned, Flickr was/is basically a more complicated version of Instagram without the hipster tinge.
Also, pretty sure PicPlz came before Instagram, and for a long time had more users (must suck to be those guys right now).
I kind of figure they had simplicity on their side, combined with an initial target market of niche/boutique/hipster/grunge/retro, and the cherry on the cake was Facebook seeing them as a growing competitor in the photo sharing biz (that would have also added a threat to the value of their upcoming IPO). /2c
I think it depends upon what you define as "first." The iMac wasn't the first computer in the sense that it wasn't the first machine with a keyboard, mouse, and operating system. But it was the first along many important dimensions including beautiful packaging and marketing, great software, etc. that are very difficult to pull off for companies attempting to create replicas (just look at how hard HP is trying to rip off the Macbook Pro). I think being first is absolutely important if you define first as being the first to create a well-executed specific product offering within a larger category. In many ways this sums up the evolution of products- one comes along that does things differently and much better than its predecessors. That in my opinion is what has made Apple so successful over the past decade- they have been the first in phones, desktops, laptops, tablets, and music sales along several very important dimensions.
Correct me if I'm wrong, but wasn't Hipstomatic launched before Instagram? This whole article is very condescending and the epitome of the death of TechCrunch.
Enterprise sales has its own set of issues which lead to generally a long sales cycle.
Corporate inertia, difficulties finding key decision makers, the start-up stigma (no big company wants to be reliant on a start-up that might not be around in a year's time.)
These roadblocks make it difficult for enterprise-focused start-ups to diagnose lack of traction. Is it product? Distribution? Market?
These issues aren't as pronounced in consumer internet start-ups. The end-user is your target (not some manager who will never use/understand the product), and fortunately around here, users are willing to try most anything. Think of how many apps you have downloaded that you don't use anymore.
Start-ups are inherently hard, and each market has its own set of challenges.
Google wasn't first. Facebook wasn't first. They both make their money from consumers, and guess what? They're doing a pretty good job at it.
And from the author's viewpoint (Instagram is just "a few filters [...] a few sharing options") Instagram wasn't first either; Hipstamatic was doing the same thing way before them, with a different business model.
It is nonsense. The Internet is slowly, but firmly diminishing the mysterious enterprise market, not the other way around. It is the same analogy why middleman (brokers) slowly eroded by the same force.
I will start from the middleman market. Middlemen are all about information asymmetry. i.e. someone knows something that others don't. The knowledge freedom that the Internet provides largely destroyed the asymmetry (knowledge gap). It is no secret that now you don't need a middleman to "brand" your music/film/video game. Instead, the leverage of social network (Twitter, Facebook, reddit etc.) enable one to market himself directly or at lower cost. That's why currently music/movie industry is under attack from two sides, both the production and the consumption. They can control neither. And this is the death of middleman market.
The same analogy can apply to enterprise market. Traditionally, it requires a long cycle to negotiating and shipping product to selected few big corps. At that case, the leverage is "information asymmetry" as well. That's why you cannot find a price quote on IBM's supercomputers, or any enterprise software/hardware. But, it is transforming too. The ubiquitous openness and flatness provided by the Internet making such man-made "information asymmetry" useless. And traditionally "consumer-facing hardware/software can penetrate enterprise market as well. That's why RIM is losing in enterprise market to Apple, and that's why Intuit is taking over accounting software market.
P.S. I am considering product for small businesses as consumer-facing product as well since it serves sufficient many customers comparing to traditionally-defined "enterprise market".
One of the main reasons why middlemen exist is trust.
When two parties have to deal with each other but cannot trust each other, then you need a "neutral" middleman that can be trusted by both. The internet will only force middle men to move there too, but the function of a middleman, not the way he works, will be needed as long as you have problems to trust someone else.
This "op-ed" completely ignores the negative aspects of working on enterprise software. Much of the work isn't very interesting to tech/design aficionados since a lot of the problems being solved are more about capturing and making business processes more efficient rather than technology or design challenges. You mostly work with more mature technologies since Fortune 500 CIO types typically have an aversion to the latest cutting edge technology and would rather go with something tried and true. And the marketing and sales (and often times the deployment) of enterprise software is still slow, inefficient, and bloated -- think sales VPs and CIOs on exotic golf outings.
I've come to realize that the distinction between enterprise and consumer is trivial. There is one basic rule for all businsses: solve a problem that is important to someone. Wanting your phone's pictures to look better turns out to be a valuable problem for many people. One nice thing about the enterprise space is that there is a tradition of paying for things of value. But instagram's lack of paying users does not imply a lack of value being added. And there's almost always a way to monetize a product that is important to someone.
Perhaps a more direct message from this article could have been: "Just because you target consumers doesn't mean you can avoid solving an important problem". Consumer products fail for the same reason enterprise ones do: their products are not important to anyone.
> But instagram's lack of paying users does not imply a lack of value being added. And there's almost always a way to monetize a product that is important to someone.
Whoa, hang on a sec there. Do you really believe that is true? If it is, then why couldn't Instagram make money from the app itself? If they could, why didn't they?
I'm pretty sure that if I bake cookies and go hand them out, people will take them. Knowing that people will consume my cookies in large quantities if I give them away is a long way from creating a successful, sustainable business out of the popularity of my free cookies. I'm sure my cookies are important to the people to whom I am giving them, but does that mean that I can monetize my free cookies in ways other than charging for the cookies? I doubt it. But let's be honest, that's exactly what we're talking about here- giving away a useful service with the assumption that I can make money by doing something else related to the service in the future. I still don't understand why these economics apply to internet companies and not more traditional companies, but I guess I am just old-fashioned.
Aside (maybe off-topic): "...solve a problem that is important to someone. Wanting your phone's pictures to look better turns out to be a valuable problem for many people."
I'd agree with the first part but not really for the second.
You either have to solve a problem, or make something that's fun. Nail either of those and you've probably got something worthwhile. In this case I'd put Instagram in the latter category.
"And there's almost always a way to monetize a product that is important to someone."
There's almost always a way to monetize a product that is both important to someone, and difficult to reproduce. If Instagram ever started charging for their service, a newer, "hipper", freer Instagram clone would have popped up overnight and it would have gained a lot of traction just by being free.
Of course, there are other ways to monetize a service other than directly charging a user, but given the nature of what Instagram is, most of the usual suspects (targeting ads and collecting user data, etc) are potentially much creepier than usual.
The real takeaway here is that if you don't have a service or product that people would pay for, you should shoot for user growth and cash out when you can.
So wait, you're saying a business is supposed to make money by selling something? You just blew my mind. I'm going to go out on a limb and say that what you are professing here applies to other businesses that have nothing to do with enterprise software. Or any software for that matter. In fact, I am going to go so far as to suggest that there are only three businesses set up to not make money- social media-related startups, government programs, and charities. If you are not starting a social network/gaming/photo-sharing/location-like thing, this Instagram acquisition story should pass you by like a ship in the night.
Articles like this annoy me. I just don't see many developers or startups being dumb enough to think they will actually be bought out by the companies listed (even with a large user base).
It's kind of like American Idol or X Factor; yeah there is a small chance of making it big, but most realise that the competition is tough and monetising startups can be very hard. Not like that is anything to worry about when being bought out, so it seems...
I think American Idol is a really good analogy. Companies like Instagram and OMGPOP are not technical wonders nor do they have great business plans. Hell, even the ideas of their winning apps are not new. But they won the popularity contest and thus cashed out. They CEOs instantly becoming the tech worlds equivalent of pop stars.
There is a more interesting question for investors and observers: Is this trend permanent or is it signalling that we are in another bubble that will one day collapse? If these companies lose their popularity is their value zero? Popularity is a volatile thing to ride billions of dollars on.
If Instagram is an anecdote , then what are Reddit, OMGPOP, NewToys etc etc? How about 37 signals etc?
A billion dollar exit is not the only reason to start a company or work for a startup
A billion dollar exit is not the only reason to start a company or work for a startup
That's actually what I got from the editorial. A billion dollars shouldn't be your motivation to bootstrap a startup or look to VCs to turn a hobby project into a fledgling company, because 99.5% of the time you'll be disappointed in your constant stream of failure. There are reasons people start companies. If your reason is to get bought out for a billion, you might want to rethink your goals.
A billion dollars can happen, and you might want to look forward to it, but in the mean time you'll need to figure out how to get your first 10 customers to fork over some money so you can pay your webhost or landlord in order to fight another month.
Something mildly condescending and irritatingly simplistic about this article... I understand his loose attempt at the general point about enterprise customer base and enterprise valuation.
But great companies exist despite "intellectual property" (another loose term), not because of it, especially in the realm of software - i.e. it simply is not the driving concern for creating either a great enterprise or startup! Think about it...
The author also seems to have completely ignored disruptive technologies and applications of them, i.e. it is not about being first for the sake of it - look at Xerox etc.
As others said, instagram wasn't the first to do this, and that is certainly not why they were bought out for 1 billion or why so many users adopted the service. Instagram didn't fill a huge gap, they made something people wanted to use. The article misses a couple beats, but I don't think the focus of it is completely misguided. A valuation and a buy out like this does not happen very often, and when it does happen, it draws the wrong kind of attention. All of a sudden a lot of people think they can do the exact same thing, that they can spend some time on the weekend and release a better version of instagram, then BAM money--fame. It's just now how things work.
I don't think instagram is completely invulnerable to the market. As a user of it, I'd happily adopt a different service that did the exact same thing better, and I don't think I'm alone. So in that sense, this article misses the mark. But I'd rather read this article than one that tells people they can do it too. It's a once-and-a-lifetime valuation. The service itself may be reproduceable but the results far from it, and in that vein the article speaks the truth. Your time is better spent elsewhere.
The first mover advantage is the way we describe winning products (value propositions) in hindsight. They are almost never, ever temporally first in any regard except the first to bundle together the right set of experiences.
Or did the VCs who own Instagram also own Facebook and so just moved some numbers from one cell in a spreadsheet to another - netting themselves huge amounts of publicity before the Facebook IPO (and probably a tax break somewhere)
[+] [-] gdubs|14 years ago|reply
Actually, Facebook was first. They've been calling themselves the biggest & best photo sharing app for quite some time now; long before Instagram existed. By this Author's logic, Instagram shouldn't have bothered.
Being first is good, but being great is better. That was the motivation behind the Mac OS, the iPhone, the iPad, etc, right? None of those things were the first in their categories.
[+] [-] nostromo|14 years ago|reply
I followed my friends' photos on Flickr when Facebook was still a php website for Harvard grads...
This strengthens your point however; first is overrated.
[+] [-] grepherder|14 years ago|reply
[+] [-] JonnieCache|14 years ago|reply
[+] [-] pud|14 years ago|reply
http://mobog.com
[+] [-] treelovinhippie|14 years ago|reply
Also, pretty sure PicPlz came before Instagram, and for a long time had more users (must suck to be those guys right now).
I kind of figure they had simplicity on their side, combined with an initial target market of niche/boutique/hipster/grunge/retro, and the cherry on the cake was Facebook seeing them as a growing competitor in the photo sharing biz (that would have also added a threat to the value of their upcoming IPO). /2c
[+] [-] dkrich|14 years ago|reply
[+] [-] DanielRibeiro|14 years ago|reply
[1] http://blog.spark59.com/2012/instagram-case-study/
[+] [-] codelitt|14 years ago|reply
[+] [-] grinalds|14 years ago|reply
Corporate inertia, difficulties finding key decision makers, the start-up stigma (no big company wants to be reliant on a start-up that might not be around in a year's time.)
These roadblocks make it difficult for enterprise-focused start-ups to diagnose lack of traction. Is it product? Distribution? Market?
These issues aren't as pronounced in consumer internet start-ups. The end-user is your target (not some manager who will never use/understand the product), and fortunately around here, users are willing to try most anything. Think of how many apps you have downloaded that you don't use anymore.
Start-ups are inherently hard, and each market has its own set of challenges.
[+] [-] amirmc|14 years ago|reply
I'm genuinely surprised to see it writ here about a photo-sharing app.
[+] [-] rhizome|14 years ago|reply
[+] [-] unknown|14 years ago|reply
[deleted]
[+] [-] JCB_K|14 years ago|reply
And from the author's viewpoint (Instagram is just "a few filters [...] a few sharing options") Instagram wasn't first either; Hipstamatic was doing the same thing way before them, with a different business model.
[+] [-] liuliu|14 years ago|reply
I will start from the middleman market. Middlemen are all about information asymmetry. i.e. someone knows something that others don't. The knowledge freedom that the Internet provides largely destroyed the asymmetry (knowledge gap). It is no secret that now you don't need a middleman to "brand" your music/film/video game. Instead, the leverage of social network (Twitter, Facebook, reddit etc.) enable one to market himself directly or at lower cost. That's why currently music/movie industry is under attack from two sides, both the production and the consumption. They can control neither. And this is the death of middleman market.
The same analogy can apply to enterprise market. Traditionally, it requires a long cycle to negotiating and shipping product to selected few big corps. At that case, the leverage is "information asymmetry" as well. That's why you cannot find a price quote on IBM's supercomputers, or any enterprise software/hardware. But, it is transforming too. The ubiquitous openness and flatness provided by the Internet making such man-made "information asymmetry" useless. And traditionally "consumer-facing hardware/software can penetrate enterprise market as well. That's why RIM is losing in enterprise market to Apple, and that's why Intuit is taking over accounting software market.
P.S. I am considering product for small businesses as consumer-facing product as well since it serves sufficient many customers comparing to traditionally-defined "enterprise market".
[+] [-] majani|14 years ago|reply
I don't think so. The main reason middlemen exist is because there are many , many things people just couldn't be bothered to do themselves.
[+] [-] hef19898|14 years ago|reply
When two parties have to deal with each other but cannot trust each other, then you need a "neutral" middleman that can be trusted by both. The internet will only force middle men to move there too, but the function of a middleman, not the way he works, will be needed as long as you have problems to trust someone else.
[+] [-] unknown|14 years ago|reply
[deleted]
[+] [-] snarf|14 years ago|reply
[+] [-] johnrob|14 years ago|reply
Perhaps a more direct message from this article could have been: "Just because you target consumers doesn't mean you can avoid solving an important problem". Consumer products fail for the same reason enterprise ones do: their products are not important to anyone.
[+] [-] dkrich|14 years ago|reply
Whoa, hang on a sec there. Do you really believe that is true? If it is, then why couldn't Instagram make money from the app itself? If they could, why didn't they?
I'm pretty sure that if I bake cookies and go hand them out, people will take them. Knowing that people will consume my cookies in large quantities if I give them away is a long way from creating a successful, sustainable business out of the popularity of my free cookies. I'm sure my cookies are important to the people to whom I am giving them, but does that mean that I can monetize my free cookies in ways other than charging for the cookies? I doubt it. But let's be honest, that's exactly what we're talking about here- giving away a useful service with the assumption that I can make money by doing something else related to the service in the future. I still don't understand why these economics apply to internet companies and not more traditional companies, but I guess I am just old-fashioned.
[+] [-] amirmc|14 years ago|reply
I'd agree with the first part but not really for the second.
You either have to solve a problem, or make something that's fun. Nail either of those and you've probably got something worthwhile. In this case I'd put Instagram in the latter category.
[+] [-] georgemcbay|14 years ago|reply
There's almost always a way to monetize a product that is both important to someone, and difficult to reproduce. If Instagram ever started charging for their service, a newer, "hipper", freer Instagram clone would have popped up overnight and it would have gained a lot of traction just by being free.
Of course, there are other ways to monetize a service other than directly charging a user, but given the nature of what Instagram is, most of the usual suspects (targeting ads and collecting user data, etc) are potentially much creepier than usual.
[+] [-] veyron|14 years ago|reply
[+] [-] dkrich|14 years ago|reply
[+] [-] drumdance|14 years ago|reply
[+] [-] j_baker|14 years ago|reply
http://en.wikipedia.org/wiki/Benefit_corporation
[+] [-] ashconnor|14 years ago|reply
It's kind of like American Idol or X Factor; yeah there is a small chance of making it big, but most realise that the competition is tough and monetising startups can be very hard. Not like that is anything to worry about when being bought out, so it seems...
[+] [-] tensor|14 years ago|reply
There is a more interesting question for investors and observers: Is this trend permanent or is it signalling that we are in another bubble that will one day collapse? If these companies lose their popularity is their value zero? Popularity is a volatile thing to ride billions of dollars on.
[+] [-] hef19898|14 years ago|reply
Please, don't be rude on me for any irony, I just needed humorical relieve! :-)
[+] [-] nanijoe|14 years ago|reply
[+] [-] uxp|14 years ago|reply
That's actually what I got from the editorial. A billion dollars shouldn't be your motivation to bootstrap a startup or look to VCs to turn a hobby project into a fledgling company, because 99.5% of the time you'll be disappointed in your constant stream of failure. There are reasons people start companies. If your reason is to get bought out for a billion, you might want to rethink your goals.
A billion dollars can happen, and you might want to look forward to it, but in the mean time you'll need to figure out how to get your first 10 customers to fork over some money so you can pay your webhost or landlord in order to fight another month.
[+] [-] drucken|14 years ago|reply
But great companies exist despite "intellectual property" (another loose term), not because of it, especially in the realm of software - i.e. it simply is not the driving concern for creating either a great enterprise or startup! Think about it...
The author also seems to have completely ignored disruptive technologies and applications of them, i.e. it is not about being first for the sake of it - look at Xerox etc.
[+] [-] mstefanko|14 years ago|reply
I don't think instagram is completely invulnerable to the market. As a user of it, I'd happily adopt a different service that did the exact same thing better, and I don't think I'm alone. So in that sense, this article misses the mark. But I'd rather read this article than one that tells people they can do it too. It's a once-and-a-lifetime valuation. The service itself may be reproduceable but the results far from it, and in that vein the article speaks the truth. Your time is better spent elsewhere.
[+] [-] unknown|14 years ago|reply
[deleted]
[+] [-] wensing|14 years ago|reply
[+] [-] OoTheNigerian|14 years ago|reply
Before, I'll say first to execute well wins. But I thought DailyBooth did well.
Maybe they did not take mobile as very important?
[+] [-] dromias|14 years ago|reply
[+] [-] excuse-me|14 years ago|reply
Or did the VCs who own Instagram also own Facebook and so just moved some numbers from one cell in a spreadsheet to another - netting themselves huge amounts of publicity before the Facebook IPO (and probably a tax break somewhere)
[+] [-] gbog|14 years ago|reply
[+] [-] meric|14 years ago|reply
[+] [-] losethos|14 years ago|reply
[deleted]
[+] [-] leovinci|14 years ago|reply
first in what? first in photo sharing or first in image processing?
first in what?
[+] [-] methoddk|14 years ago|reply
Also: Articles like this is why TC stinks.