Business Model of Instagram
Introduction
In the modern business world, the success of a business is greatly influenced by the Business Model adopted. A business model can be simply described as a program that details on the ways and means through which a business intends to generate profits from innovations (Slideshare 1). Instagram is an example of a business which has a well defined program through which it is supposed to make business gain (Griffin and Media para 2). Instagram as a brand is a universal online website and mobile application which allows users to communicate and store information by uploading and sharing photos and videos. The application also allows users to take photos directly and share them. With the increased competition posed by the close competitors like the Facebook and Twitter, Instagram has differentiated its products and enhanced community interaction to sharpen its competitive edge. This differentiation and interaction can be incorporated into the business model for optimal profits.
Instagram is the producer of its application. The company has been involved in the development, design and marketing of its products. The wide range of activities the company has been having has resulted to a reduced growth of the user base (Slideshare 1). The company needs to increase members and community interaction to grow its user base. To reach a large number of users the company collaborates with the iphones and Android. These gadgets are installed with Instagram application. This ensures that all users of these types of the gadgets automatically become subscribers of Instagram. The recent purchase of Instagram by Facebook is one of the improvements of the business model. This is because, with the numerous members and facebook subscribers all over the world, the Instagram will benefit from the increased interaction since one can import friends directly from facebook thus increasing the number of users. The increased number of users means increased subscriptions which in return increases sales and profits.
Value Proposition
The continuous effort taken by Instagram to differentiate its products and services from the competitors makes its business program even stronger. According to the Instagram co founder, Kelvin Systrom, Instagram has managed to make more appealing and engaging applications which attract most of the advertisers. Instagram pictures are the best in quality and supports easy sharing of photos with friends. This attracts many users thus increasing the number of subscribers. Poor quality photos and lack of secure storage has been common problem to many users. Instagram has assured them of photo quality and offers online storage thus winning customers trust. This strengthens its business model.
Customer Relationship
Instagram brand is unique compared with the rest in the market. Recently, it has announced that it will start showing advertisements in its news feed. This is expected to strengthen its business model even further. This is because almost all advertisements make use of photos to communicate with consumers. With the ability of Instagram to display high quality photos, the marketers will prefer Instagram thus raising its profits (Ha para 5). The link of Instagram with social network, facebook, enhances its relationship with customers.
Customer Segment
Instagram customers are mainly the android and iphones users who like pictures. Instagram applications are also used by developers of various devises and software. The integration of Instagram with facebook is aimed at bringing more customers on board thus stimulating growth (Brustein 4)
Cost Structure
According to Lim Yung-Hui in his interview with Instagram CEO Kelvin Systron (para 17), Instagram has contracted developers to maintain it. This attracts maintenance costs. Provision of APIs to users also costs Instagram a fortune (Instagram para 5). According to Andres Garzon the total cost which was incurred to build Instagram is about 175,500 dollars. However, the fixed costs are considerably less since most of its work is done virtually. According to Derrick Harris (para 3) Instagram may reduce its variable costs after acquisition by facebook.
Revenue streams
Instagram sources of revenue include the clickable images, sponsored images, premium filters and the desktop contextual advertisements (Guynn 1). In his review on the investment of 1 billion dollars of facebook to acquire Instagram, Niall Harbison reveals that the revenue streams that Instagram has could lead to incredible rise of its revenues. The recent roll out of Instagram in-stream ads by facebook is expected to boost mobile revenues (Delo, para 1). This is because the existing Instagram and facebook subscribers will be aggregated to expand the user base and consequently increase the total revenue (Brustein para 3.
SWOT
Instagram strengths include; ability to develop application for popular phones, investment in research and development and also the acquisition by facebook which will provide business synergy. Lack of loyal subscribers, strict API restrictions and overreliance on photos as the only form of communication between users are some of the weaknesses of Instagram (Instagram para 3). Opportunities available are the increasing use of mobile phones which can be enhanced with Instagram application and the increased use of social media business advertisements. Instagram business is also threatened by the increased competition and advancements of other competitors who are including photo sharing in their services.
Work Cited
Brustein, Joshua. Instagram Will Have Ads. Get Over It. Accessed on 29th Nov 2013 <http://www.businessweek.com/articles/2013-10-03/instagram-will-have-ads-dot-get-over-it>
Delo, Cotton. Instagram Rolls Out In-Stream Ads As Facebook Seeks to Boost Mobile Revenue. Accessed on 29th Nov 2013 < http://adage.com/article/digital/instagram-rolls-ads-facebook-seeks-mobile-revenue/244932/>
Garzon, Andres. The Correct Price for $1-Billion-Instagram is $175,500. Accessed on 29th Nov 2013 <http://pricetaghq.com/blog/correct-price-1-billion-instagram#sthash.i5HTc1Kq.dpuf>
Guynn, Jessica. Why Facebook bought Instagram on the way to its $100-billion IPO. Accessed on 29th Nov 2013 < http://articles.latimes.com/2012/apr/09/business/la-fi-tn-why-facebook-bought-instagram20120409>
Griffin, Dana and Demand, Media. What Are the Main Components of a Business Model? Accessed on 29th Nov 2013 < http://smallbusiness.chron.com/main-components-business-model-600.html>
Harbison, Niall. 5 Future Revenue Streams That Could Justify The $1 Billion Instagram Acquisition. Accessed on 29th Nov 2013 <http://www.simplyzesty.com/Blog/Article/April2012/5-Future-Revenue-Streams-That-Could-Justify-The-$1-Billion-Instagram Acquisition#sthash.eMMG1XnC.dpuf>
Harris, Derrick. Why Instagram is likely moving on from Amazon’s cloud. Accessed on 29th Nov 2013 < http://gigaom.com/2012/04/09/why-instagram-is-likely-moving-on-from-amazons-cloud/>
Ha, Anthony. Kevin Systrom Drops A Few Hints About Instagram’s Business Model. Accessed on 29th Nov 2013 < http://techcrunch.com/2012/03/21/kevin-systrom-fm-signal/>
Instagram. API Terms of Use. Accessed on 29th Nov 2013 <http://instagram.com/about/legal/terms/api/#>
Slideshare. Instagram. Accessed on 29th Nov 2013 <http://www.slideshare.net/ThiagoPaiva/business-model-instagram>
Yung-Hui, Lim. Inspiring Insights by Instagram CEO Kevin Systrom, The Man Who Built A $1 Billion Startup. Accessed on 29th Nov 2013 <http://www.forbes.com/sites/limyunghui/2012/04/09/inspiring-insights-by-instagram-ceo-kevin-systrom-the-man-who-built-a-1-billion-startup/>
