social media, Web 2.0

Instagram’s T&C and the hipsterization of the digital economy

The twittersphere has gone mad after Instagram’s announcement that they were changing their T&C, sparking a users’ revolt. The issue revolves around the possibility, for Instagram, to sell photographs without the author’s consent.
Needless to say, I had been expecting this announcement for quite a long time.

 

In the beginning was the dot-com boom
Once upon a time, Flickr had won the competition of the photo-sharing web services. I say web service because that was what Flickr was: not an “app” in today’s sense. After the dot-com boom with all of its “join us for free, one day we’ll have a product“, which failed to deliver that promise of creating a viable business model, history brought us a new concept: Freemium. Flickr incarnated perfectly that concept: it offered a very basic service for free (only 200 pictures), and offered a paid-for photo storage option for a reasonable price. What could beat them?

 

Hey, hipsters
Years passed, and something began to shift. Freemium started to look dull. There was a big return to the very idea that had created the dot-com bubble: you don’t need to concentrate on the business model, just execute the idea. Plenty of VC money fostered this idea. The funding for $41,000,000 of the product-less start-up color.com (and the attempt Google made to buy them for $200,000,000) is recounted as an example to follow (or as a total joke by the outsiders).

What were the reasons behind this return? I think it’s down to two facts:

  • the progress in technology, that made mobile devices available to an increasing number of people, and their penetration reaching ratios never seen before: this convinced VCs that there was nothing that could possibly go wrong having the right mass of users (i.e. a model based on conversion rates)
  • a culture switch in the type of people setting out to create businesses: from product nerds (think of Bill Gates) to hipsters.

 

Growth is the word
Hipsters have the big merit of having turned entrepreneurship into something cool, fashionable, and exhibiting good taste. Unfortunately this came with the attached condition that good ideas don’t need a money-making component straight away. No, you first need to concentrate on growth. Growth became the mantra, the magic word that could move capitals. Companies started to receive an evaluation no longer based on their profitability, but on their growth ratio. Sometimes, not even on their growth ratio but on their growth expectations. Instagram itself was acquired by a panicking Facebook for a whopping $1,000,000,000. At the same time Flickr became unfashionable.

 

Murder by growth
There is one problem with growth, however, and it’s rarely spoken about: growth can kill. A profit-less company can’t sustain growth. Well, it can, provided it constantly finds VC to back it. As a consequence, a relevant part of the business ends up concentrating on increasing the appeal to VCs rather than to paying users. The two aren’t necessarily two planets apart, but they’re not exactly the same.

 

If the product is free, you are the product
This is one of my favourite quotes, because it’s so true. When a product is free, you are consciously or not accepting T&C that allow the company to use your data. It’s what Google does, making money on ads made relevant to the user by what they know about them. Think about it just a second: Instagram and Flickr offer basically the same service. Storage and sharing of photographs. Surely Instagram’s offering is cooler and sleeker. And the lack of a proper mobile app for Flickr has never been received positively by the market. When Yahoo acquired Flickr, they paid $35,000,000. Instagram cost considerably more than that. However, Flickr had a product and sold it. Flickr has become profitable very quickly and in a very tangible way. Will Instagram ever be able to get to the green valley?

 

Flickr is the new Flickr?
There are many ways Instagram might get out of the PR fiasco that the T&C change has become. Certainly, they could just wait and hope that people will forget about it. They could offer an opt-out fee, but this would create two sets of T&C for two categories of users. They could start charging for the app, following the example of the very popular Whatsapp; what’s even more interesting is Whatsapp’s explanation of why they refuse to display ads (because they want to concentrate on selling a product and service). I think there’s a lot Instagram can still learn from Flickr. For example, Flickr offers the option to license images to third-parties, making a commission in the process. This is smart and puts the user in a better feeling towards it than being forced to give up all their pictures. Instagram was the new Flickr. But with Flickr re-entering the photo-sharing game from the front door (with an incredibly – and unexpected – good app) it might place itself as the new Instagram. In two steps, Flickr might be the new Flickr. Teaching the digital entrepreneurs that having a clear idea of how to generate revenue can be what keeps a “startup” successful – renovating and innovating – for years.
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