How Stanford made Instagram an instant success

BEST COLLEGES

HOWSTANFORD

MADEINSTAGRAMAN INSTANT

SUCCESSFacebook's $1 billion purchase of

the photo app made Kevin Systromthe latest Silicon Valley cult hero.

It happened only because he choseschool over Zuckerberg's startup.

BY STEVEN BERTONIPHOTOGRAPHS BY CHRISTIAN PEACOCK FOR FORBES

56 I FORBES AUGUST 20,2012

AUGUST 20.2012 FORBES I 57

BEST COLLEGES - INSTAGRAM

Kevin Systrom was working behind a hissingespresso machine at Palo Alto's Caffé del Dogein the spring of 2006 when Facebook ChiefMark Zuckerberg approached the counterwith a puzzled look on his face. The previous

summer Zuck had taken Systrom to dinner at Zao NoodleBar on University Avenue and asked him to ditch his senioryear at Stanford to develop a photo service for his nascent so-cial network. The Facebook. Systrom turned down the offer.Now Facebook was worth $500 million—en route to a valua-don more than 100 dmes greater—and making hundreds ofheadlines. Systrom was making cappuccinos.

"I had been like, "No, I don't want to work at this thing,' andhere I am working at a cafe,'" Systrom, 28, tells me over our$4.50 cups of ardsan coffee in the warehouselike room ofSightglass Coffee in San Francisco's SoMa district In opdng tostay at Stanford he turned down what surely would haveamounted to tens of millions in Facebook opdons. "Working ata startup to make a lot of money was never a thing, and that'swhy I decided to just finish up school. That was way more im-portant for me," shrugs Systrom. "I'm sure in retrospect itwould have been a nice deal, but it's funny where you end up."

In Systrom's case, the place you end up is exacdy the placeyou turned down—Facebook. But thanks to his Stanford de-tour, instead of eight figures, Systrom, by doing it his ownway—developing the white-hot photo network Instagram,which Zuckerberg agreed to buy in April—stands atop a $1 bil-lion score. The purchase price, which makes Systrom's stake of40% or so worth $400 million, is all the more shocking giventhat his startup has zero revenues and no revenue model. In-stagram, just 22 months old, sdll has all of 14 employees.

But what Systrom also has—and which Facebook, nowreeling after a choppy public debut, desperately needs—isbuzz and a mobile platform that has prompted more than85 million users to share 4 billion photos, with six newmembers joining every second.

"This is the first thing I've seen that feels like it's trulynadve to mobile," says Matt Cohler, the former VP of prod-uct management at Facebook and current general partnerwith Instagram investor Benchmark Capital. "To havescaled the product, the network of users and the infrastruc-ture behind it is nothing short of extraordinary under anycircumstance; to do it with such a small team is unique inthe annals of technology."

While the Web-based biggies try to jam their productsinto mobile apps like an overstuffed suitcase into an over-head bin, Instagram's photo network was jet-set fi-om thestart: fast, stylish and elegant With a few simple thumb tapsyou can snap, edit (with awesome filters) and share an In-stagram photo with the world. A few more taps let you doall the things that built Facebook, including comments andlikes. "You can look at Facebook as this bundle of so many

different things, but it turns out that people just like photosmore than anything else," says Adam D'Angelo, the formerFacebook CTO and current head of question site Quora (aswell as an Instagram investor). "So if you specialize in pho-tos and do photos really well, that's in some way more pow-erful than this bundle of everything else."

SYSTROM OFFERS YET MORE PROOF that in the digi-tal economy a great idea can grow into a billion-dollarcompany in a matter of months. But these windfalls,serendipitous as they seem fi-om the outside, are almostnever accidental. In Systrom's case his good fortune can betraced directly to Stanford.

It was on the Palo Alto campus that Systrom got his firstlook at the worlds of tech and venture capital, his first intern-ship at a startup and his first job at Google. He discovered his


love for vintage photography through a Stanford study-abroad program and met Zuckerberg and his young Facebookcrew at a Stanford fraternity party. When he was searchingfor a cofounder to launch the company that later morphedinto Instagram, it was a Stanford connection that brought thepair together. "When people say that college isn't worthwhileand pajdng all this money isn't worthwhile, I really disagree,"says Systrom. "I think those experiences and those classesthat may not necessarily seem applicable in the moment endup coming back to you time and time again."

Systrom, a lanky 6-foot-5, loved technology well before hiscollege years. At age 12 he was pranking his fiiends in HoUis-ton. Mass, over AOL 'with programs that allowed him to con-trol their cursors or knock them oiïline (his Bart Simpson an-tics got the family AOL account blocked). He applied early toStanford, 'with the intent of studying computer science, but

afrer enrolling in an advanced programming course in hisfreshman year, Systrom found himself over his head, spending40 hours a week on one class just to squeak out a B: "I loved itbut started to think maybe I shouldn't be a computer scientist",Instead, he majored in management science and engineering."It basically taught me how to be an investment banker."

Long interested in entrepreneurship and startups (his momwas an early employee ofMonster.com and currently works atZipcar), Systrom spent his free time building websites, such asa Stanford version of Craigslist Another site, which he calledPhotobox, was a place for his fraternity, Sigma Nu, to post pho-tos from the latest keg party.

During junior year Systrom traveled abroad to study pho-tography in Florence, Italy. He arrived in Italy 'with a high-powered SLR camera only to see his photo teacher swap it fora Holga camera The cheap plastic device produced quirky

square images 'with sofr focus and lightdistortions that yielded a retro look. Sys-trom loved the aesthetic. "It taught methe beauty of'vintage photography andalso the beauty of imperfection." It wasSystrom's Steve Jobs moment—a fiash ofartistic inspiration that he would latercombine 'with technology to rocket In-stagram ahead of its competitors.

While in Florence Systrom appliedto Stanford's elite Mayfield FellowsProgram: a work-study seminar thatthrew 12 students into the world ofstartups and paired them 'with entre-preneur and VC mentors. "It taughtyou fundraising, how deals were struc-tured, how they came up with ideasand hired people. It was a crash-coursebusiness school for startups," Systromsays. The program's codirector, TinaSeelig, says Systrom stood out as an ob-vious entrepreneur: "He was alwaysbuilding things—always experimenting.It was in his nature to be looking at theworld through the lens of Where's theopportunity here?"'

Through the Mayfield program Sys-trom snagged a summer internship atOdeo, a podcast company founded byEvan Williams that would later birthTwitter. Odeo gave Systrom his firsttaste of the adrenaline-filled startup en-vironment and showed him how quick,fiexible thinking was 'vital for a com-pany's survival. During his internshipSystrom created apps with a young engi-

AUGUST20.2012 FORBES I 59


neer named Jack Dorsey, who would soon start Twitter andthe payment company Square. It was a key connection: Thetwo nonvegans in the office quickly bonded on runs for delisandwiches, and Dorsey, now a billionaire, would later helpInstagram get ofïthe ground, building demand for its filteredphotos by posting images on his much-followed Twitter ac-count

Senior year, with help from Stanford career services,Systrom passed on a six-figure project manager role atMicrosoft to stay local with a Google marketing gig that paidabout $60,000. Google was a recent graduate's dream—oysterlunches, team-building retreats in Brazil—but Systrom grewbored writing marketing copy for Gmaü and Google Calendar.Denied a role in product development (Google required acomputer science degree) he switched to corporate develop-ment, where he modeled discounted cash flows for companiesGoogle aimed to acquire and saw firsthand how big technol-ogy deals got done.

Hungry for the startup environment he found while in-terning with Odeo, Systrom jumped to a social travel guidesite called Nextstop, where he turned himself into a Valley-grade coder, designing e-mail programs that suggested usersto follow and building Facebook photo games. "All of a sud-den I had a new skill that I could actually put to use," saysSystrom. 'W^hen you had an idea youcould actually create it."

Soon he found something hewanted to create: a site that wouldcombine his passion for photos withlocation check-ins and social gaming,mimicking the then-surgingFoursquare and Zynga, respectively.He chatted up his idea—then knownas Burbn, after his favorite booze—at a VC meet-up at theMadrone Art Bar and caught the ear of Baseline Ventures'Steve Anderson. Anderson says he liked Systrom's humbleconfidence and that Systrom's site would be written in thethen "it" code of HTML5. In the winter of 2010 Andersonoffered him $250,000 to launch the company (and An-dreessen Horowitz matched that stake) on onecondition—Systrom needed to bring in a cofounder.

SYSTROM'S STANFORD DIVIDENDS CONTINUEDlong after graduation. He launched Burbn in the living roomof his one-bedroom San Francisco apartment and wouldoften work on the prototype at Coffee Bar in the Mission sothat he could see other humans. There he'd sometimesbump into Mike Krieger, a Brazilian native who had gradu-ated from Stanford's Mayfield program two years behindSystrom and was working on apps of his own. Krieger hadmajored in symbolic systems—a Stanford mash-up of tech-nology and psychology that counts Linkedln's Reid Hoff-

"THE IPHONE WAS SONEW. PEOPLE WERECREATING REALLYCOOL STUFF AND

COOL BEHAVIORS."

man and Yahoo's Marissa Mayer as alumni-and was work-ing at a chat site, Meebo. On one occasion Systrom letKrieger download his new check-in app. "I wasn't superen-thusiastic about location-based things, but Burbn was thefirst one that I loved," Krieger tells me, noting it was theability to view photos of his friends' various adventures thathad him hooked.

A month later Systrom invited Krieger to breakfast to con-vince him to quit Meebo and join Burbn as a cofounder.Krieger's response: "Count me interested; we'll talk more."The pair field-tested the partnership—working on small pro-grams after work and over weekends—and after a few weeksSystrom proved more convincing than Zuckerberg had beenyears earlier. Krieger quit Meebo and started what would bea three-month process to obtain a U.S. work visa.

On Krieger's first day on the job, though, Systrom de-clared that Burbn wouldn't survive—Foursquare had toomuch traction. They had to build something new and de-cided to streamline Burbn into a photo-only, mobile-fo-cused service. "The iPhone was so new, and people werecreating really cool stuff and creating new behaviors," Sys-trom says. "It was an opportunity to create a new type ofservice, a social network that wasn't based on a computerbut the computer in your hand."

Over the course of two weeks the co-founders hunkered down at DogpatchLabs near AT&T Park, cranking out aphoto app they called Codename.Krieger designed the iOS software whileSystrom worked on the back-end code.The prototype was basically an iPhonecamera app with social and commentingfunctions. Neither was too excited about

what they had buut Frustrated, Systrom needed a break.He rented a cheap house at an artist colony in Baja Califor-

nia, Mexico for a week's vacation. While walking down thebeach, his girlfriend, Nicole Schuetz, asked how one of theirfriends posted such amazing-looking photos over the app. Hisanswer? Filters. Suddenly Systrom remembered his experiencewith the cheap camera in Florence He spent the rest of theday lying on a hammock, a bottle of Modelo beer sweating byhis side, as he typed away at his laptop researching and design-ing the first Instagram filter that would become X-Pro 11.

Back in San Francisco new filters soon followed, like Hefe(named after the hefeweizen beer Systrom drank while de-signing it) and Toaster (in honor of the labradoodle ovwied byDigg founder Kevin Rose). They renamed the product Insta-gram and gave the new app to friends—many of them tech in-fluencers like Twitter's Dorsey—who started posting their fil-tered photos to social networks. Buzz began to build.

Instagram gives low-quality camera phone pics a hip,retro feel. One tap on the touchscreen and an average sunset

M



The StanfordSolar SystemThese alums rule thetech universe.

SERGEY BRIN

JERRY YANG LARRY PAGE

ANDYBECHTOLSHEIM

OMIDKOROESTANI

JEFFREYSKOLL

DAVIDCHERITON

PETER THIEL

SCOTTMCNEALY

JIM BREYER

STEVEBALLMER

CHARLESSIMONYI

I INVESTOR

I EXECUTIVE

I ENTREPRENEUR

I BOARD MEMBER

MARISSAMAYER

REIDHOFFMAN

changes into a tropical postcard, an old bicycle gets a sdng ofnostalgia and a half-eaten hamburger turns poignant "Imag-ine if there was a funny button in Twitter or a clever buttonin Tumblr," says Systrom. "Most photo apps before askedsomething ofthe users. They said you produce, act and per-form. Instagram said let us take care ofthe secret sauce."

Recipe in hand, Systrom and Krieger launched Insta-gram on the Apple app store at midnight on Oct 6,2010.Users fiowed in, and Systrom and Krieger rushed to Dog-

patch Labs to keep the servers stable. By 6 a.m. media siteslike Bits Blog and TechCrunch published stories about thedebut The servers melted. Systrom and Krieger worked astraight 24 hours to keep the app running—in that period25,000 iPhone users downloaded the free service.

"From that day on we never had the same life," says Sys-trom. They called on Quora's Adam D'Angelo, who Systromhad met with Zuckerberg at a Stanford frat party and whohelped Instagram get on Amazon.com servers and scale the


platform. After one month Instagram had a million users.Soon Systrom found himself sitting in the fourth row atApple's keynote watching Steve Jobs highlight the app beforethe crowd. They had made it to technology's biggest stage,but keeping the Instagram servers running as users joined bythe millions was still proving to be a major challenge.

AS WE HANG IN A BOOTH at a cocktail bar called Tradi-tion—Systrom, Krieger and two early employees. JoshRiedel and Shayne Sweeney—it's easy to forget that thesefour twentysomethings in indigo jeans and untucked but-ton-downs are running a billion-dollar tech company. Butwhen Krieger noticed that a photo he snapped ofthe barmenu has yet to receive any likes (with 177,000 followers,the response is usually instantaneous), a MacBook Air, aVerizon Hotspot and a pile of iPhones materialize amongthe glasses of cask-finished bourbon.

Krieger digs through code on his laptop as the others textwith Instagram engineers via Facebook chat They find theglitch and get to work. A few minutes later the problem issolved, the gadgets tucked away and another round ordered."It's otu- baby," says Systrom. "It keeps usup at night and wakes us up in the mom-ing." Company policy requires engineersto keep a laptop on them at all times.Computers have been whipped out duringbiithday parties, date nights and weddingreceptions. Once, Krieger was dining at a

"ITS OUR BABY.IT KEEPS US UP

IN AT NIGHT ANDWAKES US UP

IN THE MORNING/'

that everyone is coordinated on this one thing to share pho-tos, and you can't move them all out onto something else. Thenetwork has been built out It's too late."

This kind of buyout often means game over for founders,but with Instagram Systrom and Krieger are likely still in theirfirst quarter. Unlike his other acquisitions, which are quicklyabsorbed into Facebook, Zuckerberg has pubKcly pledged to letSystrom run Instagram independently. Sysü-om and Kriegercan use Facebook's muscle to scale and shape Instagram into amore substantial service. Their goal: transforming Instagramfrom a photo app for sharing pics of puppies and pizza into amedia company that communicates through photos.

"Imagine the power of surfacing what's happening in theworld through images, and potentially other types of media inthe future, to each and every person who holds a mobilephone," Systrom says. At its best Instagram would be a pocket-size window to the world that wül deliver a live view of what'sunfolding across the globe—say, Syrian stteet protests or theSuper Bowl sidelines. "I think they have Thomas Edison op-portunity," says Thrive Capital's Joshua Kushner. "At somepoint in the next two years you'll go onto Instagram and see

whaf s happening in real time anywhere inthe world, and that's world-changing."

Before Instagram changes the worldthere's work to be done—an Android-based version launched four monthsago—and Systrom admits it's currently toohard to discover new users, see what's

farm-to-table restaurant when the system happening around you, trade commentscrashed. He frantically roamed thegrounds for a vidreless connection imtil he finally found onebar of service—inside a chicken coop.

These feats of server acrobatics wül likely end once theFacebook deal goes through—FTC approval is still pending—and the 14-person Instagram team can tap into Zuckerberg'smassive network infrastructure. Systrom says he's ban-ed fromgoing into detail about the Facebook deal until the regulatorsapprove it But he did tell me the acquisition happened duringa fi-enzied week in April after he returned fi-om a U.K. vacatioaThat Wednesday Instagram was wired $50 million in a seriesB round from VCs including Greylock, Sequoia and ThriveCapital that valued the company at $500 million. On SaturdayZuckerberg invited Systrom to his Palo Alto home. This timeSystrom took Zuck's offer. By Monday the billion-dollardeal—including $300 million in cash—was done.

Facebook's purchase of Instagram—a company that hasyet to earn a dollar—caused many in the media to scream,"Bubble!" Meanwhile, some insiders were whispering, "Bar-gain!" "It was worth much more than that I think Facebookgot a great deal," says Quora's D'Angelo. "It was probably veryscary to Facebook that someone else might own Instagram orthat it might turn into its own social network.... The fact is

and look at your photos from the past He'salso set on creating a website version of Instagram (severalclones already exist). And Instagram must also continue to ex-pand its user base to the tune of a few hundred million beforeit can truly become the eyes ofthe world.

Then there's the whole revenue thing. Independent ornot, Facebook will one day call on Instagram to bring in dol-lars. Systrom isn't worrying about that for now. "I think thevisual format works well with advertisers. Ifyou followBurberry or Banana Republic you see their Instagram postsare really ads, but they're also beautiful," Systrom says."Right now we're focusing on growth. It's not about squeez-ing a buck out of an advertiser."

Systrom, who still lives in the same one-bedroom apart-ment, relishes a relatively shoestring life. On another night Ihead with the Instagram gang to the old Army bowling alleyin the Presidio to celebrate an employee's birthday. Four In-stagramers and I squeeze into Systrom's black 2002 BMWhe bought used when he worked at Google. The car's GPS isbroken, and the $400 million man almost mistakenly steersus across the Golden Gate Bridge. "I think not focusing onmoney makes you sane," he says, "because in the long run itcan probably drive you crazy." Q

AUGUST 20.2012 FORBES I 63

Copyright of Forbes is the property of Forbes Inc. and its content may not be copied or emailed to multiple sites

or posted to a listserv without the copyright holder's express written permission. However, users may print,

download, or email articles for individual use.

How Stanford made Instagram an instant success

Documents

Transcript of How Stanford made Instagram an instant success