Building a Billion-Dollar Business? Yeah, There’s an App Store for That

Courtesy Instagram via Bloomberg

Kevin Systrom, right, and Mike Krieger are the founders of Instagram, which Facebook is buying for $1 billion.

While Silicon Valley is asking what today’s Instagram news says about Facebook, a more apt question may be: What does it say about Apple?

Until last week, Instagram was an application built exclusively for the iPhone. Even so, in less than two years, it became a company Facebook paid $1 billion to acquire. This deal comes less than a month after Zynga paid $180 million for OMGPOP Inc., which makes the iPhone game “Draw Something.”

The purchases validate the role of Apple’s App Store as a platform for building companies, even ones with little revenue, said Carl Howe, an analyst at Yankee Group. Instagram may be the largest purchase price for an app built for the App Store.

“You’re going to see valuations in app companies in general be a little surprising,” Howe said. “What it says is that the software market is now apps.”

Instagram is a fairy tale story for the thousands of entrepreneurs who have been building applications for the App Store since it opened in 2008. Instagram attracted more than 30 million users with a staff of 13 people who worked out of a small San Francisco office.

“It’s probably one of the most efficient ways for delivering software we’ve ever seen,” said Howe, referring to the App Store. “If you want to make money, that’s the place you want to start.”

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