What would have happened to Instagram if it wasn't acquired by Facebook?
First and foremost, let's raise a toast (once again) to Instagram for pulling off the deal of the century. Or maybe the deal of the milky way.
(Shot using a native iPhone Camera)
Errrr....actually let's toast this the Instagram way!
Images treated with Instagram filters as shown above!
Now, coming to the point:
What would have happened to Instagram IF Facebook would not have bought it?
Let me share my view:
This is the way Instagram has scaled in users :
Source - http://www.quora.com/Instagram/How-many-users-does-Instagram-have
Clearly, it DOUBLED its users in the past 3 months (and this is before it launched in the Android marketplace).
Hence it's safe to assume that by June 2013, Instagram will have 50 million users and in another 6 months from there - say Dec 2013, it will have touched 100 million users.
So, what CAN YOU DO with 100+ million users who use a Mobile Photo app?
Let's see what Camera Awesome (a strong competitor of Instagram when it comes to treating photos goes) offers:
(p.s - Camera Awesome is one the best rated camera apps on the iTunes store by the Wall Street Journal etc. etc.)
Check out Camera Awesome:
Now PAY ATTENTION TO THIS SCREEN (See the arrow on the bottom left)
What Camera Awesome does is SELL 'Top Ups' as FILTERS and SPECIAL Effects to people like me who really want to make a photo read like a STORY!
Believe it or not, once I bought one set of filters, I succumbed to all the others and in the end PAID US$ 9.99 for 'Everything'!
SO I PAID US$ 9.99 for 'all the photo editing effects' when I got addicted to Camera Awesome.
Now, what could a layman, silly accountant like me, do with these filters?
What made me - The Marwari, SPEND US$ 9.99 (almost Rs 550/-) on 'virtual' camera filters?
Check this out:
This is a photo I shot at the Gurgaavan Toll bridge using my iPhone:
This is what I did to the same photo using CAMERA AWESOME:
If you realize, I turned a silly Toll Bridge into a World War 2 Story (that's how I posted it on FB etc) and derived the satisfaction of being an 'ace photographer' without really having the training, equipment or the talent to be one!
CAMERA AWESOME made me FEEL AWESOME.
Now, let's apply this Consumer Delight Economic Model to Instagram:
With 100+ million users, let's assume that in Dec 2013 Instagram would begin to offer 50+ NEW CAMERA FILTERS & EFFECTS to its users, for say US$ 9.99.
The general thumb rule is that 2-3% of all free users UPGRADE to paying users when they get enhanced offerings.
2% of 100 million users would mean 2 million users!
If each of the 2 million users would pay US$ 9.99, (Zynga's average revenue per user is US$ 20.00), that would mean that Instagram would generate a revenue of 20.00 million dollars a month!
Ps - This is not a 'recurring' revenue model. This is a one time payment. BUT, as it is observed in all the 'virtual goods' businesses, the 'LTV' - Lifetime Value of users ranges for 2-3 months. ALSO, there are the rest of the 98% who are 'fence sitters' that jump in, AND also new users that keep getting added.
Prorate/extrapolate that number, and it's easy to see that in 2014, Instagram could easily generate 300-400 MILLION US$ in revenue.
Now, the cost of generating these images is ZERO except some silly server costs. As regards people, Instagram has 13 people on its rolls!
So Instagram Profits would easily be at least 80%!!
Using the same math, in 2014, on a 300-400 MILLION US$ revenue, Instagram would have 250-300 MILLION US$ IN NET PROFITS!!
Even a 10x multiple on profits (Internet companies go much higher), it would mean that Instagram would be valued at 2-3 BILLION US$ easily if not more.
DID YOU READ THAT RIGHT? 2-3 BILLION US$$$ !!!!
So, there you have it!
And we thought 1 Billion US$ for Instagram by Facebook was the silliest thing we had ever heard of!
Tags: Camera Awesome, Facebook, Instagram
Views: 1424
Replies to This Discussion
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Permalink Reply by Suresh Mansharamani on -
Amazing
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Permalink Reply by Srinath Iyer on -
Awesome :)
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Permalink Reply by Ronak on -
I don't think the math regarding the revenues is correct. So correct me if I am wrong. Your assumption of 2-3% users paying $10 equates to $20 Million monthly revenues. But that $10 you would pay is not recurring. its rather one time. so it will be difficult to sustain that revenue rate.
eg. I'm sure you never paid anything to Camera Awesome after the initial purchase of $10.
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Permalink Reply by Alok 'Rodinhood' Kejriwal on -
Ronak, that's the whole point.
The revenue IS NOT recurring.
BUT, 98% of people are still available to tap into.
The LIFE TIME value of most 'virtual goods' users is 2-3 months, but new users add on and also, older fence sitters jump in!
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Permalink Reply by Alok 'Rodinhood' Kejriwal on
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Thanks to you and a couple of similar responses and feedback, added this para:
Ps - This is not a 'recurring' revenue model. This is a one time payment. BUT, as it is observed in all the 'virtual goods' businesses, the 'LTV' - Lifetime Value of users ranges for 2-3 months. ALSO, there are the rest of the 98% who are 'fence sitters' that jump in, AND also new users that keep getting added.
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Permalink Reply by Ronak on
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Thanks for that. My comment was purely from the math point of view.
As regards why Facebook bought Instagram, my hypothesis: I don't think it was the potential valuation which Instagram would otherwise get had it been independent that drew facebook to acquire it. or for that matter, how much will instagram add to Facebook's bottom line say 2-3 years from now.
I guess Facebook wants a much richer ecosystem and data around photos is much richer given the context. So Facebook can probably monetize/ leverage this data in a whole new way.
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Permalink Reply by Zohdi Rizvi on
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In other words, the "Opportunity Cost" is thrice the times than "Acquisition Cost"
For now, Chapter closed, Big Fish has eaten the tiny fish, that would have turned into whale someday!
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Permalink Reply by Shailesh Gupta on
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great insights! Btw.. what is the common multiplier range for internet based companies in US and in India? @Alok sir please?
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Permalink Reply by Alok 'Rodinhood' Kejriwal on
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PE? at least 20 :-)
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Permalink Reply by Elroy Serrao on
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Nice take on the whole Instagram deal. I'd say the back-of-the-envelope calculation you did is one possible future. I'd take a more pessimistic view of things and say that given the short life of Instagram so far, its a bit too early to predict if that wonderful future would be realized. What's more likely in my opinion, is that Instagram could have ceased to be relevant in the next 2 years and made way for the next mobile craze ( or for that matter something we haven't thought of yet ). Facebook's made the bet that Instagram will continue to be relevant and if it pans out like you said, this whole thing in retrospect will look like a steal. Luckily we live in interesting times, where game changers that change the face of reality are all too common - so should be interesting to see how this pans out.
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Permalink Reply by Rishav Rastogi on -
While I might agree with you on the math. You may have actually not taken a few factors into account, for example, the latest funding they had received two days before the acquisition
But from what I am heard, instagram wasn't interested in a such a model, they hadn't done it yet atleast. Apparently, the latest round of 50 mil $ was to expand and bring the new business model. There evaluation was set at 500 mil $ because of the which facebook had to offer them enough premium to sell == 1 Bil $ ..
We may actually never know what that 50 million would have been used for. But I think what you suggest is something Instagram could easily implement and did not do so..
I think one of the biggest reason to buy it was to increase activity on FB itself, which is waning lately (especially in already saturated markets like US and UK, by no means less but reducing ) . If your projections are correct, and FB can truely drive instagram into their own workflow, it could possibly lead to an substantial increase in FB's traffic.
I think its FB's bid to become more relevant, or maintain its relevancy for current and future users.
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Permalink Reply by Nishant Agrawal on -
You are implying that of all the users, 2% will buy the product every month. We will restrict our time horizon to 8 years.
2% per month means 24% per year, or 100% in 4 years. This means that every single person who signs up will use the application for 8 years (ie, he wont turn passive). And each user will purchase the product at least twice in these 8 years. That doesn't make sense.
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