Instagram and Direct Benefit Effect
The photo-sharing app Instagram debuted in October 2010. Initially, the app was downloaded less than 10,000 times per day here in the U.S. By April 2012, that number had grown by a factor of 10. The interesting aspect is that downloads and “shares” on Twitter increased very modestly until around February 2012, after which there was much more rapid growth. Additionally, Instagram saw slow growth in other countries, notably China and Korea. In these trends, we see the Direct Benefit Effect on display.
In early April 2012, Instagram released a version of the app compatible with the Android operating system and there were over 1 million downloads within 24 hours. Shortly thereafter, Facebook purchased Instagram for the hefty price of $1 billion. Regardless of Instagram’s merits as an app alone, its value certainly spiked with the addition of the Android version because of its widespread use and popularity. This could be why Facebook spent such a large sum to acquire Instagram. Of course, Instagram became more valuable not just as a company, but also as a service for the general public. If you want to share photos, it makes sense to share them with the same app all of your friends use. It is no coincidence that there were approximately 60% more Instagram shares on Twitter in April 2012 than there were in March 2012.
The Direct Benefit Effect can also help explain Instagram’s slower growth outside of the U.S. After just a day, Instagram was the top photography app in the iPhone App Store. However, it was 58 days before Instagram was number one in China and was over a year and a half before it reached that mark in Korea. This is largely because China and Korea initially preferred apps that were compatible with the common local social networks. Here we can see the other side of the Direct Benefit Effect; when Instagram was not as common in these social networks, its value was less than in the U.S.
Clearly we see a snowball effect: as Instagram became more popular, it also became more valuable. This brought in more users, et cetera, et cetera.
http://techcrunch.com/2012/04/24/the-rise-of-instagram-tracking-the-apps-spread-worldwide/
http://techcrunch.com/2012/04/09/facebook-to-acquire-instagram-for-1-billion/
http://en.wikipedia.org/wiki/Instagram