Everyone talks about how beautiful Path is. Instead, they should talk about how push-y it is.
Why? Because Path has 1) identified the critical mobile social channel (push notifs) and 2) executed on them like a pro (Dave Morin co-invented FB connect & understands channels well).
Here is why this is critical:
- Morin wants to build a “slow” company (specifically a “slow” social network)
- By Morin’s own definition this means “slow” organic install growth driven family, close friends (150 max friend limit)
- Social networks increase in value as user base grows
- If emphasis is truly on “slow” growth, extraordinary attention must be given to retaining the users that come in the door
- Push notifs (PNs) are *the* critical mobile retention driver
Given the above, Path has executed very well:
- High quantity of PN: nearly every type of user generated content (photo, thought, location, I’m with, I’m listening to) generates a PN to everyone in the user’s network. Basically, if you use Path, you generate PNs.
- Quality of Path PNs is high. Two reasons for this 1) Path embeds user generated content into each PN (as a result you get personalized PN) and 2) length of PNs are very short
- PN looping -> Since each user generated action creates a PN, users often create PN loops (Joe posts a thought, which sends a PN to Jill, Jill comments on it, which sends a PN to Joe, Joe comments back, which sends a PN to Jill, etc…)
Why does it matter?
- A great PN strategy will act as a force multiplier on growth -> by dramatically altering the user retention curve for the better
- Even low quality PN, sent at higher volume can have a material impact on app retention (think 1,000 basis points all across the retention curve)
- Given Path’s good execution on PN, it’s likely that they are seeing retention gains in excess of 1,000 -> maybe as high as 2,000 basis points
- This creates a material difference in daily average users (DAU) -> by D90 Path could be seeing a 500K+ incremental daily users due to their PN strategy (this is even under more conservative assumptions than a 2,000 bps difference throughout the retention curve)
- As a result, PN strategy is likely driving an incremental ~35%+ increase in DAU
Insta-book. $1B! 13 employees! 700K+ a day “salary”! Systrom! Photos! Yay! FB! OMG. LOUD VOICES!
Ok, now that Instagram madness is covered above let’s talk about why FB bought. I’m breaking down my thoughts into 2 categories: 1) Why I think FB bought and 2) how they helped justify the price tag. I should highlight that the thoughts below are mine alone and are simply an exercise in thinking how FB arrived at its 1B conclusion.
Why did fb acquire?
Instagram is a legitimate mobile force, with the results to back it up:
- Getting mobile right is a strategic imperative for FB. Why? Mobile is where the users are moving (see slide 11 here)
- FB doesn’t have a track record of getting mobile right (it’s got a 2-star app rating).
- Instagram is getting mobile right. 30M downloads and a perfect 5-star rating prove that.
- That Instagram has 13 employees is irrelevant. FB likely has 300+ super-talented people focused on mobile. Has it produced Instagram like results? No. If you’re still arguing that FB should have just hired 13 great mobile developers for 0.1% of their acquisition cost, please read the preceding 3 sentences. The results are what matter.
Photo sharing is critical to FB:
- FB is a social network. And by definition benefits from network effects.
- Engaged users are engaged because user generated content continually draws them back in.
- A massive component of that UGC is photos (FB became largest photo sharing site all the way back in 2009).
- All of a sudden, a new photo kid is in town & growing quickly. And he understands how people share photos today (via mobile devices).
- Google has plenty o’ cash & has signaled their intent to muscle into the social space.
- FB is understandably concerned about the Google threat. While Google may not “understand” social the way Facebook might not “understand” mobile, big daddy G is still a veritable opponent.
- Instagram would have given Google+ a menacing shot in the arm (new users, social networking chops, mobile networking stronghold)
- If you’re FB, that sounds terrifying.
Given the strategic reasons above, how might have FB have justified the price?
If FB wants to monetize Instagram, they can. In a big way.
- Instagram had roughly 30M installs at time of acquisition.
- Assume a growth curve like below, with roughly 20% of total installs coming in the last 3 months.
- This is what avg. daily installs might have looked like for last 2 years (forecasts err on conservative side)
Instagram likely has solid retention
- We don’t have great data here so we’ll make some assumptions
- Systrom spoke about “FB levels of engagement” here
- They have an impeccable 5-star rating on the app store (correlation of app store rankings to retention is very strong)
- We’ll assume they have D1 retention of 80% and D90 retention of 30% (meaning 90 days after install 30% of the users still use app).
This means awesome daily average user (DAU) base
- Given their reported installs and our assumed retention patterns, Instagram’s DAU at time of acquisition is around ~2M.
- 2M is already huge. But potential for further growth is massive.
- Given the app’s launch on Android and overall mobile trends, it’s possible they’d hit ~7M DAU by March next year
- (SIDE NOTE: Post acquisition facts have confirmed significant growth, 10M more in 7 days).
- You could argue that Zynga is an unfair comparison because games are different.
- But consumers have an even longer history of paying for photography (digital cameras today, online space today and albums, films, disposables, polaroids in the past).
- Regardless of the route, it seems highly plausible Instagram would be able to monetize 0.8% of DAU through some combination of added premium filters, special albums, editing features, extra space or other add ons.
What else crossed FB’s mind (the frosting on top)?
- New data access. Semil Shah has a good explanation of some potential network mapping FB could do.
- Recruiting top engineering talent in the valley is cutthroat. Instagram is the hip new start-up on the block. FB can sell future talent on the opportunity to work with that team. Nice bonus.
- “Instragram for video” – I’ll wager good money either Google or FB will scoop up an Instragram for video in the next year.
Dartmouth CS is working on a project called NeuroPhone. From their abstract:
We propose to use neural signals to control mobile phones for hands-free, silent and effortless human-mobile interaction…. users on-the-go can simply “think” their way through all of their mobile applications.
Pretty incredible technology, demo below: