The story of Instagram’s explosive rise reads like a Silicon Valley fairy tale, with the company gaining staggering momentum within just a few short months. The photo and video-sharing social media application took only eight weeks for software engineers to develop before it was launched on Apple’s mobile operating system in October 2010. In less than two years, Facebook (FB) had acquired the company for $1 billion in cash and stock. But like all good tales, the process involved many twists and turns, failures and successes, conflicts and synergies, and a dose of fortuitous happenstance. 

Key Takeaways

  • Instagram is a photo and video-sharing social media application that was launched in 2010 by Kevin Systrom.
  • The first prototype of Instagram was a web app called Burbn, which was inspired by Systrom's love of fine whiskeys and bourbons.
  • The Instagram app was launched on Oct. 6, 2010, and racked up 25,000 users in one day.
  • From the beginning, the primary focus of the app was to feature photographs, specifically those taken on mobile devices.
  • Just prior to Instagram's initial public offering (IPO) in 2012, Facebook acquired the company for $1 billion in cash and stock.

History of Instagram

In 2009, Kevin Systrom, a 27-year-old Stanford University graduate, was working at Nextstop, a travel recommendations startup. Systrom had previously worked at Google (GOOG) as a corporate development associate and interned at Odeo (a company that would later evolve into Twitter (TWTR).

While Systrom had no formal training in computer science, he learned to code on the nights and the weekends while working at Nextstop. He eventually built a prototype of a web app called Burbn, which was inspired by his taste for fine whiskeys and bourbons. The Burbn app allowed users to check-in, post their plans, and share photos. Although at the time, location-based check-in apps were very popular, the photo-sharing feature of Burbn was very unique.

Venture Capital Funding

A crucial turning point came in March 2010 when Systrom attended a party for Hunch, a startup based in Silicon Valley. At the party, Systrom met two venture capitalists from Baseline Ventures and Andreessen Horowitz. After showing them the prototype of his app, they decided to meet for coffee to discuss it further. After their first meeting, Systrom decided to quit his job and focus on Burbn. Within two weeks, he had raised $500,000 in seed funding from both Baseline Ventures and Andreessen Horowitz to further develop his entrepreneurial venture.

This seed funding allowed Systrom to start building a team of people to support his venture; the first to join him was 25-year-old Mike Krieger. Also a Stanford graduate, Krieger had previously worked as an engineer and user-experience designer at the social media platform Meebo. The two knew each other from their time as students at Stanford.

Pivot to a Photo-Sharing Application

After Krieger joined, the two reassessed Burbn and decided to focus primarily on one thing: photographs specifically taken on mobile devices. They carefully studied leading apps in the photography category at that time. For Krieger and Systrom, the Hipstamatic app stood out to them because it was popular and had interesting features that you could apply to photographs, such as filters. However, it lacked social media-sharing capabilities; Systrom and Krieger saw potential in building an app that bridged Hipstamatic and a social media platform like Facebook.

They took a step backward and stripped Burbn down to its photo, commenting, and "liking" functions. It was at that time that they renamed their app Instagram, combining the words instant and telegram. They also began focusing on improving the photo-sharing experience. Their intention for the app was that it would be minimalist and require as few actions as possible from the user. After eight weeks of fine-tuning the app, they gave it to friends to beta test and evaluate its performance. After resolving some errors in the software, they brought it to launch. 

Launch of the iOS App

The Instagram app was launched on Oct. 6, 2010, and racked up 25,000 users in one day. At the end of the first week, Instagram had been downloaded 100,000 times, and by mid-December, the number of users had reached one million. The timing of the app’s release ended up being fortuitous because the iPhone 4– featuring an improved camera–had launched just a few months earlier, in June 2010.

Series A Funding

After the rapid rise in Instagram's user base, more investors became interested in the company. In February 2011, Instagram raised $7 million in a Series A funding round. One of their investors was Benchmark Capital, which valued the company at around $25 million. In addition to institutional investors, the company attracted the attention of other leading companies in the social media technology industry, including Twitter and Facebook.

Although this new round of financing gave Systrom and Krieger the opportunity to hire more people, the founders decided to keep the company really small, with barely a dozen employees.

Systrom knew Jack Dorsey, the co-founder of Twitter, from his time as an intern at Odeo. Dorsey expressed a strong interest in the company and pursued the idea of acquiring Instagram. Twitter reportedly made a formal offer of around $500 million in stock, but Systrom declined the offer.

Facebook Acquires Instagram

By March 2012, the app’s user base had grown to approximately 27 million users. In April 2012, Instagram was released for Android phones and was downloaded more than one million times in less than one day. At the time, the company was also close to receiving a new round of funding at a valuation of $500 million. Systrom and Facebook founder Mark Zuckerberg had become acquainted through events held at Stanford, and the two had been in communication in the beginning of Instagram's rapid rise in popularity.

In April 2012, Facebook made an offer to purchase Instagram for about $1 billion in cash and stock; a key provision was that the company would remain independently managed. Shortly thereafter and just prior to its initial public offering (IPO), Facebook moved forward and acquired the company for $1 billion in cash and stock.

Instagram made a limited-feature website interface available in November 2012. In June 2014, the company introduced an app for the Amazon Fire device, and finally, in 2016, it created an app that made it compatible with Microsoft Windows tablets and computers.

Terms of Service Controversy

Instagram hit a bump in the road in December 2012 after updating its terms of service. This update effectively granting Instagram the right to sell users' photos to third parties without notification or compensation. The move drew immediate criticism from privacy advocates and many of the app's users; some users responded by deleting their accounts. Instagram eventually retracted the controversial terms.

New Features Added to the App

Although Instagram has a variety of features, in general, the app's interface allows individuals who have created a free account to upload media–both photos and videos. Users can then edit the media they upload with filters and organize them with location information and hashtags (a word or phrase preceded by a hash sign that is used primarily on social media platforms to identify posts about a specific topic). Users can make their profiles public or private; the difference is that with a public profile, a user's photos/videos are viewable by every other Instagram user, whereas with a private profile, users can approve who they want to be able to view their posts. Instagram users can browse other users' photos and videos by searching for hashtags and locations. They can also scroll through an aggregation of trending content and interact with other user's photos and videos by clicking on buttons that allow them to "like" a post or add a text comment to a post. When a user "follows" another user, it means that they are adding that user's photos and videos to their feed.

The first version of the Instagram app only allowed users to display their media in a square aspect ratio (an aspect ratio is a proportional relationship between an image's width and height). For a square aspect ratio, an image's height and width are the same. This meant that Instagram users could only post media that matched the 640-pixel width of the iPhone 4 at that time (in 2010). In 2015, this feature changed and users could upload media that was larger (up to 1080 pixels).

Since Instagram was first launched, the service has also added a messaging feature and the capability for users to include multiple images or videos within the same post. Currently, one of the app's most popular features is called "Instagram Stories." With this feature, users can post photos and videos to a separate feed of content within the app. These types of posts are viewable by other users for 24 hours after the time of the original posting. According to Instagram, 500 million people used Instagram Stories every day in 2020.

The Bottom Line

While user growth has continued to increase since the Facebook acquisition, Instagram has made a relatively small number of changes to the app, sticking to its simple and intuitive user experience and core focus on photo- and video-sharing capabilities. Despite the high price tag of its acquisition, the company appears to have been a savvy investment on the part of Facebook. In 2019, the market research company eMarketer predicted that Instagram would reach 117.2 million users by 2021. In 2018, Instagram was the second-most downloaded free app on the Apple app store (second only to Youtube's free mobile-device app. In 2019, there were 1 billion people that used Instagram every month.