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How Instagram Achieved Insta-growth with Network Effects

Textbook Network Effects: How Instagram Achieved Instagrowth

This article talks about how Network effects led to its rapid growth – the social media platform grew its valuation from $0 to $1 billion in only two years. The reason that Instagram grew so rapidly is precisely because of Network Effects; the platform is more valuable because when more people use it, the value of the other product for the other users increases. I thought this was interesting because it aligns well with the description from class about Network Effects, specifically positive externalities. As stated in the class textbook; “An externality is any situation in which the welfare of an individual is affected by the actions of other individuals, without a mutually agreed-upon compensation. For example, the benefit to you from a social networking site is directly related to the total number of people who use the site. When someone else joins the site, they have increased your welfare even though no explicit compensation accounts for this. ”

The article also mentions that there is an initial obstacle in creating a social media platform, because if you initially have 0 users, why would anyone join if there’s no benefit without other users? The author uses the ‘chicken egg’ analogy to describe the obstacle and also mentions how in today’s age there have been solutions to overcome this initial challenge. The solutions include having a standalone value for just 1 users. Instagram accomplished this by offering several different filters for free, which was not common at the time when Instagram was first released. Many joined for this feature and stayed for the network. The other benefit was by having an extremely simple, easy to use platform to use, edit and share your pictures. By having these initial benefits, the user base began to grow until eventually, the Network Effects took over and led to its rapid growth and success.

 

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