3 things Instagram says about Silicon Valley in 2012

From Mercury News:

Even in Silicon Valley, and even in an era marked by enormous sums of wealth, Instagram’s instant riches still managed to stun many people. And the company continued to be the talk of the valley, one day after Facebook’s incredible $1 billion offer for the startup, which has roughly a dozen employees and is less than 2 years old.

While only time will tell whether this deal makes fiscal sense for Facebook, the story of Instagram resonates because it tells us so much about Silicon Valley in 2012.

First — and foremost — tech is now all about mobile.

The remarkable thing about Instagram isn’t just that it’s a mobile-first service. It’s a mobile-only service. Yes, you can view Instagram photos on a Web page, but there’s not really a proper Instagram website where you can scroll through your or your friends’ photos. Your profile, your stream of Instagram photos, and the photos from people you follow are all designed to be experienced within the app on your phone.

“I believe for the foreseeable future the experience will be mobile,” Instagram co-founder Kevin Systrom told me last May. “There are thousands of sites where you can upload and share photos online.”

Of course, one of the largest such photo-sharing sites is Facebook. In its recent IPO securities filings, the company acknowledged that its fastest growth is coming from mobile users. An opportunity but also a problem since the company hasn’t really figured out how

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to make money from its mobile audience.

“Everything is going mobile,” said Scott Ellison, a mobile analyst at IDC. “We’ve got the hardware side figured out now. It’s really about the apps and the user experience. And Facebook’s next billion users are going to come from the mobile space.”

Because of that, Instagram also loomed as a potential competitor for Facebook, which is incredible considering the company’s small number of employees. And yet, that also reflects the conventional wisdom of Silicon Valley today that says startups should be “lean.” In other words, they should keep their expenses and headcount low until they’ve perfected their product and are generating revenue that covers their costs.

Instagram built and launched its first app for the iPhone in October 2010 by raising only $500,000 and with a team of four. When I talked to Systrom last May, the company had raised its first official venture capital round of $7 million three months earlier, but had hired only two more people. By the time of this week’s deal, the headcount had doubled, it had just launched a version for Android, and it had raised a second round of venture capital of $50 million.

“We are absolutely trying to hire a great team, but we’re trying to be careful about hiring,” Systrom said last May. “It’s really a matter of focus and iterating. With a team of four, we can work on a feature for a week. And because we’re only on one platform, that allows us to iterate fast, which keeps us ahead of the game.”

Continue reading the rest of the story on Mercury News