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 – https://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!