Instagram is poised to raise a new round of financing that will value the popular photo-sharing application at as much as $500 million, people familiar with the matter said, despite skepticism that the fast-growing company will find a way to make money.
The potential new valuation–about 20 times what the fast-growing company was worth around a year ago—highlights the promise and pitfalls of technology start-ups that have built their business around users of mobile devices, such as Apple Inc.'s iPhone.
Despite lacking a viable monetization plan, Instagram's valuation has lept to half a billion dollars. As much as I admire Instagram and all that it does, I could not help but read that sentence with initial disbelief.
Although some have been quick to point the accusatory finger and play the "Bubble!" card, I tend to air on the side of optimism. In the face of enormous social networks, Instagram dares to do one thing exceptionally well and it does so without betraying the trust of the end-user. Perhaps such a relationship is contextually tenuous, but I must admit that I feel entirely positive about Instagram's long-term prospects.
Just under a month ago, writing about Instagram 2.1, I wrote:
Instagram is, and always has been, a fantastic social network. But with this update, Instagram has earned a newfound level of credibility and maturation that was heretofore lacking from the interface. Although the monetization of Instagram is still a relative mystery, if the progression demonstrated in this update is indicative of the social network's forthcoming iterations, I can only imagine Instagram is going to continue its rapid and impressive growth.
Bubbles aside, investors have evidently made similar recognitions of Instagram's potential. $40 million is no small number and, accordingly, I imagine investors have some semblance of a clue as to how they might achieve returns in the near future. Just as Twitter eschewed significant monetization schemes in its early life, Instagram's appears similarly structurally sound, despite the hesitance of onlookers.
Building competent software, serving the end-user, and fostering a fun environment all contribute to an affable and enjoyable experience. Without this general sentiment, Instagram's market potential would be woefully absent. And yet, here it is, an app built entirely for the iPhone gracing the pages of The Wall Street Journal.
Although concerns are valid, Instagram has come of age and has demonstrated the evolution of the software environment. With a new aesthetic, increased adoption, and $40 million in funding, I imagine monetization will find its rightful place within the app's infrastructure in relatively short order.