Episode 2 Instagram

In this episode of Acquired, hosts Ben Gilbert and David Rosenthal, alongside their guest, discuss the significance of Facebook's acquisition of Instagram. They highlight how Pilot, a startup accounting firm backed by notable investors including Sequoia and Jeff Bezos, exemplifies the outsourcing of non-core business functions, a practice endorsed by Jeff Bezos's startup-focused axiom. The conversation then shifts to the transformative Instagram acquisition, which they categorize as primarily a product acquisition, despite its significant technological influence on Facebook's mobile strategy. The hosts speculate on the potential impact had Instagram remained independent, possibly leading to more business model innovation akin to Asia's WeChat. They conclude by praising the acquisition's exceptional return on investment, with Instagram's valuation skyrocketing from $1 billion to an estimated $35 billion, and invite listener suggestions and guest contributions for future episodes.

• Pilot is a company providing accounting, tax, and bookkeeping needs for startups and growth companies.
• They are the largest startup-focused accounting firm in the US.
• Pilot is backed by Sequoia, Index, Stripe, and Jeff Bezos.
• The company's services include setting up and operating a company's entire financial stack.
• Pilot offers services like finance, accounting, tax, and CFO services such as investor reporting and budgeting for board decks.
• They have experience with thousands of startups, including OpenAI, Airtable, and Scale, and can scale with companies as they grow.

"Pilot is the one team for all of your company's accounting, tax and bookkeeping needs and in fact now is the largest startup focused accounting firm in the US."

This quote emphasizes Pilot's role as a comprehensive provider of financial services for startups and their standing as a leading firm in the industry.

"Every company needs it. It needs to be done by a professional. You don't want to take any risk of anything going wrong, but at the same time, it has zero impact on your product or customers, things you do uniquely well."

This quote highlights the necessity of professional accounting services for companies and the idea that it doesn't directly affect the product or customer experience, but is still essential for business operations.

• Ben Gilbert and David Rosenthal introduce themselves and the Acquired podcast format.
• Ben is the co-founder of Pioneer Square Labs, a company that creates, prototypes, and launches startups.
• David is a principal at Madrona Venture Group, an early-stage venture capital firm.
• The podcast format includes discussing acquisition facts and history, categorizing acquisitions, exploring hypothetical scenarios if acquisitions hadn't happened, and identifying tech themes illustrated by the acquisitions.

"Welcome back to episode two of Acquired. I'm Ben Gilbert."

Ben Gilbert is reintroducing himself to the audience in the second episode of the Acquired podcast.

"And I'm David. I am a principal at Madrona Venture Group."

David Rosenthal is introducing his professional role and the company he is associated with.

"So, as a quick reminder, the framework that we've decided on for our show is we're going to briefly talk about the acquisition kind of facts and history. Then each of us, Ben and I, are going to categorize the acquisition into a few buckets that we've identified, and then we're going to do a fun segment called what would have happened had the acquisition not happened."

David outlines the structure of the podcast, which includes discussing the details of acquisitions and speculating on alternative scenarios.

• Facebook acquired Instagram in April 2012 for $1 billion.
• Instagram had 13 employees and no revenue at the time of acquisition.
• The acquisition was surprising due to the high valuation of a company with no obvious monetization model.
• Instagram had 30 million users at the time and had recently launched an Android app.
• The acquisition signaled the beginning of the "age of the unicorn" in the tech industry.
• As of the podcast recording, Instagram had around 150 employees and 400 million users.

"Facebook buying Instagram. So, as a quick reminder, the framework that we've decided on for our show is we're going to briefly talk about the acquisition kind of facts and history."

Ben Gilbert introduces the topic of Facebook's acquisition of Instagram as part of the podcast's format.

"This acquisition, I think, really ushered in, quote-unquote, the age of the unicorn."

David Rosenthal comments on the significance of the Instagram acquisition in the tech industry, marking the start of a trend where startups reach billion-dollar valuations.

"Instagram now has, two and a half years later, 400 million users."

Ben Gilbert provides an update on Instagram's user growth since the acquisition, indicating a significant increase in its user base.

• The hosts thank listeners for feedback and mention that they learned from it.
• They encourage listeners to continue providing feedback and mention how to contact them via Twitter and their website.
• The hosts discuss the evolution of Facebook's role from a social platform to a more utility-based service in people's lives.

"Thank you for the amazing feedback. It was incredible. We learned a lot."

David Rosenthal expresses gratitude for listener feedback and the impact it had on the hosts.

"You can find the show on Twitter at Acquired FM. You can find Ben at Gilbert, you can find me, David at Djrosent, DJ Rosent, and our website is live at acquired FM."

Ben Gilbert provides information on how listeners can interact with the show and the hosts on social media and their website.

• In 2015, Facebook's mobile strategy had evolved significantly from its state during the Instagram acquisition in 2012.
• Facebook initially struggled with HTML5 mobile apps, which were buggy and inefficient for mobile advertising.
• The shift to native mobile apps was crucial for Facebook, with mobile app installs and CPI (Cost Per Install) ads becoming a significant part of their revenue.
• Mark Zuckerberg acknowledged Facebook's early missteps in mobile, but acquisitions like Instagram and WhatsApp and internal developments like Messenger helped correct the course.

"Facebook was in such a different place from where it is today... They were still in the whole HTML5 mobile app... their apps were buggy."

This quote emphasizes the challenges Facebook faced with their mobile app strategy before transitioning to a more effective native app approach.

"What is half of Facebook's revenue, if not more?... But at least it seems like everything that people talk about with Facebook is their mobile app installs and their CPI ads."

The quote highlights the importance of mobile app installs and CPI ads as a significant revenue stream for Facebook after overcoming their initial mobile strategy issues.

• Instagram offered a simple, mobile-first user experience with immersive, full-screen photos, appealing to users' creative aspirations.
• Instagram's focus on a singular, engaging experience contrasted with Facebook's more complex desktop-based interface that was challenging to translate to mobile.
• The Instagram team's understanding of user attention and intention on mobile platforms was key to its success.

"Instagram, which is born in the mobile era and has these immersive, beautiful, damn near full screen photographs... It was focused on making anybody able to look like a talented, creative."

This quote illustrates Instagram's mobile-centric design and its ability to engage users by making them feel creative and talented through simple photo filters.

• Facebook's acquisition of Instagram was a strategic move to maintain engagement and adapt to mobile trends.
• The acquisition was not just about integrating Instagram's features into Facebook but learning from its success and maintaining it as an independent product.
• Facebook's strategy involved acquiring popular platforms to stay relevant with younger users and then integrating the talent and insights from those acquisitions to improve their core offerings.

"And what Facebook did in acquiring Instagram is set their hubris aside and say, we're not the most important platform, the most important thing is our business staying alive."

The quote reflects Facebook's strategic humility in recognizing the need to acquire Instagram to stay relevant and maintain business growth.

• The acquisition was initially viewed as a product-centric move, allowing Instagram to evolve independently while benefiting from Facebook's resources.
• However, some argue that the acquisition was fundamentally about technology, as it marked the beginning of Facebook's successful transition to a mobile-first strategy.
• Instagram's acquisition influenced Facebook's subsequent acquisitions and the development of a suite of mobile apps, including Messenger, WhatsApp, and Oculus.

"I'm going to say technology here... this became, as I was talking about really the first piece of Facebook's entire strategy for the mobile technology wave that they missed."

The quote suggests that the Instagram acquisition was pivotal in shaping Facebook's mobile technology strategy, leading to a suite of successful mobile apps.

"What is Facebook today? Facebook is a suite of apps company."

This quote encapsulates the result of Facebook's acquisition strategy, transforming from a single platform to a diverse suite of mobile applications.

• Statsig is introduced as a new sponsor for the podcast, following the appearance of their CEO, who previously worked at Facebook.

"Our sponsor for this episode is a brand new one for us, statsig... Vijay spent ten years at Facebook where he led the development of their mobile app ad product."

This quote announces Statsig's sponsorship of the podcast and connects the CEO's experience at Facebook with the theme of mobile app development and advertising.

• Statsig offers a modern feature management and experimentation platform.
• It enables product teams to ship features quickly, automate A/B testing, and assess the impact on core business metrics.
• Statsig provides visualizations powered by a robust statistics engine, allowing for real-time product observability.
• The platform connects newly shipped features to business metrics, providing instant feedback on their effectiveness.

"Statsig is a feature management and experimentation platform that helps product teams ship faster, automate a b testing, and see the impact every feature is having on the core business metrics."

This quote explains the purpose of Statsig as a tool for product teams to enhance their development process and make data-driven decisions.

• Statsig facilitates data-driven decisions by testing product changes with various user groups.
• It provides accurate reporting on the impact of these changes.
• The platform is used by companies like Notion, Brex, OpenAI, and Microsoft to manage and test their product features.

"Statsig lets you make actual data driven decisions about product changes, test them with different user groups around the world, and get statistically accurate reporting on the impact."

This quote emphasizes the data-centric approach to product development enabled by Statsig, highlighting its global testing capabilities and precise impact analysis.

• Statsig is particularly useful for testing AI product features.
• It can ingest data from data warehouses, making it compatible with various company data storage solutions.
• The platform supports both existing feature flagging setups and new users without requiring migration from current solutions.

"Also, Statsig is a great platform for rolling out and testing AI product features."

The relevance of this quote lies in highlighting Statsig's capability to manage and test AI features, an increasingly important aspect of modern product development.

• If Instagram had remained independent, its growth may have been slower without Facebook's resources and prioritization.
• Instagram's integration with Facebook's newsfeed algorithm likely contributed to a spike in traffic.
• The removal of Instagram's native integration with Twitter's stream was a significant change that affected user behavior.

"I think Instagram as a product to users wouldn't be significantly different. I think that it would have continued to grow more slowly because they didn't have the resources, they wouldn't have had the prioritization."

This quote speculates on the trajectory of Instagram's growth and product development had it not been acquired by Facebook, suggesting a slower pace due to resource constraints.

• Instagram's advertising platform has evolved to offer immersive brand ads that are well-integrated with the platform's content.
• The acquisition by Facebook provided Instagram with a larger funnel of advertisers and a shared advertising dashboard.
• The cohesiveness of Instagram's app ecosystem, including features like Boomerang and Hyperlapse, is attributed to its design team.

"Instagram has a very real ad platform and they took their time in developing it."

The quote discusses the development and effectiveness of Instagram's advertising platform, which has become a significant aspect of its business model post-acquisition.

• The acquisition of Instagram by Facebook marked the beginning of a trend where large tech companies create a constellation of apps.
• This trend has influenced the social platform landscape, with many new U.S.-based social platforms being owned by larger companies.
• WeChat in China represents a major business model innovation with value-added services and integrations, contrasting with the U.S. where acquisitions have limited such innovation.

"What's really interesting, because it has, you now have all of these major social platforms that have been created over the past five years."

This quote reflects on the impact of the constellation of apps trend on the creation and ownership of social platforms in the tech industry.

• Owning the audience is becoming increasingly important in technology.
• Companies must control the default channels that users turn to for various activities.
• The rise of services emphasizes the need for companies to be the primary source of leisure or distraction for users.

"You really have to own the audience."

The importance of this quote lies in its assertion that success in the tech industry increasingly depends on a company's ability to capture and retain its audience's attention.

• Facebook's core asset is its position as the primary channel people access for social interaction and entertainment.
• The platform's role as a gateway to attention makes it a powerful entity in advertising and influencing business models.
• Facebook's acquisition of Instagram was seen as a defensive move to maintain its position as the primary channel for attention.
• Instagram's model focuses on not cluttering the feed, yet it successfully monetizes the attention it receives.

"And I think Facebook's core asset was, and still sort of is being that core place where people want to go and want to. The first thing you want to do when you open your phone, when you have some downtime or whatever it is you go there to be distracted."

This quote highlights the significance of Facebook as a go-to platform for users seeking social engagement and distraction, underlining its value in capturing user attention.

• Technology companies with advertising models have outpaced traditional media in size, reach, revenue, and value.
• Traditional media had a clear separation between content creation and distribution, with shared advertising revenue.
• Facebook, through Instagram, has combined content and distribution, allowing it to grow significantly larger than any single traditional media company.
• The integration of content and distribution within one company or app ecosystem has been a key factor in the growth of tech companies like Facebook.

"But when I was in banking, I worked on television and cable networks a lot, and their content and distribution were separate."

This quote explains the traditional media model where content creation and distribution were distinct entities, contrasting with the integrated model of companies like Facebook.

• Technology waves bring new companies, content, product models, and business models.
• The mobile wave has overtaken the desktop wave, exemplifying the evolution of technology and associated business practices.
• Scalability and leverage are significant themes in technology, with Instagram's small team managing millions of users as an example.
• Technology enables companies to achieve significant leverage with relatively few employees compared to traditional media.

"And then the other one that I think is something I've been thinking about a lot lately in terms of technology themes, I think is the scalability and the leverage that technology gives you."

The speaker reflects on the scalability and leverage that technology companies have, which allows them to grow rapidly without proportional increases in employee count.

• Instagram had 13 employees serving 30 million users at the time of Facebook's acquisition.
• Despite a small team size, Instagram has been valued at $35 billion and is estimated to generate $2 billion in revenue.
• The acquisition of WhatsApp for over $20 billion with around 50 employees is another example of tech scalability.
• The revenue calculations for Instagram are influenced by its integration with Facebook's existing ad network.

"And it's impossible to know how much revenue Instagram is generating today. But there was a great equity research report put out by Citigroup a year ago, almost a year ago, in which they valued Instagram at $35 billion."

This quote discusses the difficulty in ascertaining Instagram's exact revenue but highlights its significant valuation based on an equity research report, demonstrating its financial success post-acquisition.

• Crusoe is a clean compute cloud provider that specializes in AI workloads.
• They partner with Nvidia and run their data centers on wasted, stranded, or clean energy.
• Crusoe's model offers better performance per dollar than traditional cloud providers due to their unique energy sourcing.
• The company's environmental approach and cost efficiency are major selling points, as they utilize energy that would otherwise be wasted.

"Crusoe's cloud is purpose built for AI and run on wasted, stranded or clean energy, they can provide significantly better performance per dollar than traditional cloud providers."

This quote highlights Crusoe's unique selling proposition of using energy that would be wasted to power their AI-focused cloud services, offering better cost efficiency and performance.