Behind Instagram’s Success, Networking the Old Way

No sleep ...

The men worked into the wee hours on Oct. 6, 2010, to get Instagram up and running. At 4 a.m. Mr. Systrom wrote on his Twitter feed, “Well there goes that night of sleep.”

Rob Abbott, one of the advisers at Dogpatch Labs, who was keeping them company that night, said, “I remember them just sitting side by side, phones all over the desk, and cans of Red Bull.”

Instagram took off like a rocket, in part because Mr. Systrom had whipped up demand. As he explained in an interview with the Internet television network Revision3 in January, Mr. Systrom let some influential technology bloggers and contacts, like Mr. Dorsey of Twitter, try a test version of the app before its official release. Soon Mr. Dorsey was using it to send photos to his Twitter followers, and word spread.

But the frenzy was as much blessing as curse. The heavy load prompted an all-night effort to switch to Amazon.com’s rent-a-server service, which made it easy to add capacity to keep up with growth.

Mr. Systrom and Mr. Krieger soon took to carrying MacBook Airs and wireless cards everywhere. If there were glitches, they could quickly get online and troubleshoot. “Which happened a lot, due to the influx of traffic,” Mr. Abbott said.

From 25,000 users in the first 24 hours, Instagram grew to 300,000 by Week 3, and then into the tens of millions.

With its quirky borders and filters that gave photos extra punch or a nostalgic glow, it tugged at heart and soul. Celebrities got on board, including the pop star Justin Bieber last July. On Twitter, he posted an Instagram photo of traffic in Los Angeles. Teenage girls screamed — and then checked out Instagram. An Android version of the app, released this month, brought in one million people in its first 24 hours.

The founders kept their team lean, adding just 11 people since the app’s initial release, including several Stanford graduates. Investors lined up at the door.

Benchmark Capital, whose partners Mr. Systrom had met while in college, led an investment round of $7 million in February 2010. Mr. Dorsey and Mr. D’Angelo joined in. Last week came a second round of financing that valued the company at $500 million. Mr. Systrom told associates in recent months that he was not interested in selling.

Then Mark Zuckerberg called.

When he and Mr. Systrom talked last Friday, Mr. Zuckerberg, Facebook’s chief, was blunt: Facebook wanted to buy Instagram. Over the next 48 hours, the two companies hammered out the details for a $1 billion cash-and-stock deal, according to people with knowledge of the matter who spoke on the condition of anonymity because the discussions were private.

To toast the occasion, Mr. Zuckerberg wrote a lengthy post on his personal Facebook page, calling the transaction an “important milestone” for the company, which has been eager to get a stronger foothold in mobile apps. The deal, and the speed with which it came together, implies that Mr. Zuckerberg saw Instagram’s meteoric rise as a potential threat, whether as a stand-alone service or in the hands of one of its rivals like Google or Twitter. A Facebook spokeswoman declined to comment.

Mr. Systrom did not end up beating Foursquare. As it happened, he and Dennis Crowley, one of Foursquare’s founders, grew up in neighboring towns in Massachusetts. Over Christmas break two years ago they met at a local pub. Last month they met up on a business trip to London, where they met the prime minister, and decided to take a short vacation to Scotland together, complete with Scotch tasting.

Mr. Systrom may have lost one connection in the deal: Mr. Dorsey of Twitter. His company, according to several people briefed on the matter, had expressed interest in buying Instagram in recent months. Mr. Dorsey once used Instagram daily to send photos to Twitter, but he has not been back since the deal was announced, perhaps a sign that he is not happy to see it in the hands of a competitor. A Twitter spokeswoman declined to comment.

The Instagram team showed up at Facebook this week, as documented by a Facebook vice president on — where else — Instagram. Whether Mr. Systrom will stay there for long is anyone’s guess. With a public offering imminent, there is the risk that Facebook may soon become what Google was — a safe place to be, but not terribly cool. And Mr. Systrom may again get antsy.

—Evelyn M. Rusli and Nick Bilton contributed reporting.