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Q & A:  Instagram explained at a glance

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With everybody from your teenage son to your mum suddenly talking about Instagram, here’s a quick ‘at a glance’ guide to get you up to speed

Follow me: @bex_hobson and @LondonLovesBiz

Yesterday Facebook bought the photo sharing network, Instagram, for no less than $1bn. The internet hasn’t stopped twitching since. So what’s the fuss about? How does it work and, if it doesn’t make money, why has Facebook bought it?

Q. What exactly is it? Is it an app? A social network? A camera?  

Instagram is a combination of two things: a camera application for smart phones and a social network. Once downloaded, the application allows smart phone users to take a picture using the camera already in their phone and apply different filters to it. The filters make the photo look retro.

Once the user has taken the picture and modified it, the user can upload it to their account in the Instagram social network where other Instagram users can see it, “like” it and/or comment on it.

Q. Can all smart phone users use it?

Yes. Although originally rolled out for the iOS platforms – that’s Apple’s mobile operating system which includes iPhone, iPod, iPod Touch and iPad – the app is now available for Android users too.

Q. How many people use it?

To date the Instagram user base is about 30 million.

Q. How do I get it?

The Instagram app is available to download for free from Apple’s app Store and, as of earlier this month, the Google Play marketplace making it available for smart phone users in the Android operating system.

The Android launch marks another milestone for Instagram: it was downloaded one million times in less than 24 hours on the Google Play marketplace. Since then it has reached five million downloads in six days.

Q. How long has it been around?

It was founded two years ago in March 2010.

Q. If it’s free how does it make any revenue?

It doesn’t, it’s free to use and there’s no advertising.

So far Instagram has received a total of $57.5m of venture capital funding.

The first round of funding included $500,000 of seed funding from Silicon Valley VCs Andreessen Horowitz and Baseline Ventures.

In February 2011, the former CTO of Facebook and angel investor Adam D’Angelo, was one of five investors to provide Series A funding of $7m.

Series A funding applies to Silicon Valley start-ups and is the name given to describe a company’s first round of significant funding.

Other investors in the round included Twitter co-founder Jack Dorsey, venture investor Chris Sacca, Baseline Ventures and Benchmark Capital.

Last week, a Series B funding round valued the company at $500m and raised $50m in doing so. Led by the VC Sequoia, Thrive Capital, Greylock and Benchmark also took part in the second stage investment. These investors doubled their money almost overnight.

Q. Who owns the company?

Kevin Systrom and Mike Krieger founded the company. Systrom owns around 40 per cent and Krieger 10 per cent. They employ 11 staff.

Q. Why did Facebook buy it?

Perhaps the most important question of all is why Facebook spent $1bn on an app that doesn’t generate a revenue? Instagram’s valuation has been rising steadily for some time. The fact that it’s valuation doubled in a matter of weeks is mostly to do with its user base exploding since it became available to download for Android users.

As for its meteoric rise in valuation in the first place, however, and the reason for which Facebook has bought it, many say is simple: Instagram is about sharing photos and, fundamentally speaking, so is Facebook.

In his blog Zuckerberg wrote: “providing the best photo sharing experience is one reason why so many people love Facebook and we knew it would be worth bringing these two companies [Facebook and Instagram] together.”

Q. Is there a bubble on the horizon?

If all of this massive speculation of businesses not generating actual revenue sounds a bit like the dot.com bubble of the late nineties and early noughties to you, don’t worry, you’re not alone.  For some time there has been talk of a second tech bubble fast approaching.

Just four years ago the social network Bebo was acquired by AOL for $850m. Two years later, in 2010, it was sold to a provide equity firm in 2010 for a fraction of the price – at $10m.

Other doomed social networks include Friends Reunited (often labelled the precursor to Facebook) which was sold to the Beano publisher, DC Thomson, for £25m in the summer of 2009. Last year its owners told shareholders that Friends United was worth £5.2m.

ITV acquired the social network for £120m in 2005.




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