When Friends count, How the Instagram Value Proposition is Worth a Billion Dollars to Facebook

The paradigm shift in what we sociologically consider a “friend” was on display today in its finest form.  As Facebook consummated the acquisition of  Instragram for one billion dollars, it re-inforced the value of community building.  It would be untruthful had I told you my parting tag line “Until next time, be good and cultivate your community of friends” really was responsible for creating the immense wealth for the 13 employees of Instagram.  Lets take a closer look at the value proposition Instagram offers and why a community of 30 million users is worth a billion dollars to the world’s largest social network.

In 18 months with 13 employees, Instagram created a superior mobile photo sharing experience.  If we look at the positioning of Facebook in the social media sphere, you see the world’s largest network with many good features and a constant effort to improve intuitive components.  Even with 850 million members there is always a way to find a better experience.  The sheer size of Facebook’s operation does not allow for dynamic changes that avant-garde early adopters demand.  This vacuum creates opportunities for small tech companies like Instagram that are able to create and deliver a unique application.  In the case of Instagram the value proposition of a mobile interface that allows users to “filter”, enhance and share pictures over multiple social media platforms proved quite valuable.  Who knew that adding a 1970’s flare to a photo that I share with my “friends” would generate this amount of attention.  However if you look at the deal from Facebook’s point of view, it is possible to see the value albeit possibly overpriced and a reactive move.  Since photo sharing is such a large component of the social network and as this content increasingly shifts to the mobile platform, Facebook wants to make sure they are strategically positioned to deliver the best possible engagement.  With the purchase of this asset Facebook not only buys a community of 30 million users but it further monopolizes the photo sharing category as it prepares to compete for market share with upstart Pintrest.

The case of Instagram shows how Entrepreneurs need to build their community of users/customers as this becomes your biggest asset.  How do you put this into practice for your business?  Here are a few steps Instagram mastered:

1.  Define your expertise and create skills that positively affect user experience.  For example if you specialize in selling European motorcycles, become an expert on the subject and help create the ultimate individualized two-wheel fantasy experience for a customer.  The motorcycle shop creates an intense positive feeling for its first client.  In turn this person tells friends and family, thereby sowing the seeds of an organic vibrant community.

2.  Continually prototype and accept constructive criticism on your venture.  Instagram’s CEO Kevin Systrom not only narrowed the capabilities of his application but he continually beta tested it on friends and socially influential users until he found the right mix of features and benefits.

3.   Finally, stay engaged with your community.  Kevin Systrom is one of the most active CEOs on Quora .  Over the last two years he shared how the company was built and the methodology behind the exponential growth.  Systrom managed and increased his engagement by continually reaching out and sharing his experience building his venture.

So there it is, friendship, community building and massive wealth in three easy steps.  As you move forward seizing opportunity and creating value just remember your old friend blogging from a basement in suburbia.  I always knew you could do it, please let me know when you get to the promised land.

Until next time, be good and cultivate your community of friends.


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