What Instagram's monster payday says about Android's future

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Anyone wringing their hands over how Instagram would monetize its wildly popular photo-sharing app can rest easy. Instagram broke the bank this week, agreeing to a $1 billion cash and stock offer from Facebook that represents the largest acquisition in the social networking giant's eight-year history. The deal caps off a meteoric rise that began in October 2010, when Instagram first launched on Apple's (NASDAQ:AAPL) iPhone; fewer than 18 months later, the app--which enables users to snap, filter and manipulate photos, then share their work across Facebook, Twitter, Tumblr and foursquare--now boasts more than 30 million registered iOS users who upload more than 5 million photos every day.

"This is an important milestone for Facebook because it's the first time we've ever acquired a product and company with so many users," Facebook co-founder and CEO Mark Zuckerberg said. "We don't plan on doing many more of these, if any at all."

There aren't many more startups like Instagram, of course--and even fewer who've built apps that fit so snugly into Facebook's ambitions for social media domination. That won't stop other mobile developers from doing whatever they can to replicate the Instagram formula, and there are at least two universal lessons to be drawn from its success.

The first takeaway is that's absolutely necessary to offer your app on iOS: Instagram built its business with nothing but an iOS app. The second takeaway is that a native Android app is no less important. Instagram first indicated plans to extend to Android late last year but did not officially launch on the Google (NASDAQ:GOOG) platform until last week. The wait seems to have supercharged consumer demand: Downloads of Instagram for Android have already topped 5 million.

Instagram's Android debut arrives at a time when developer interest in the operating system is in decline. According to the recent Q1 2012 Appcelerator/IDC Mobile Developer Report, 78.6 percent of developers express strong interest in building Android apps, down from 83.3 percent in the fourth quarter of 2011 and from around 87 percent a year ago. At the same time, 89 percent of developers express strong interest in building apps for the iPhone, edging ahead of iPad interest at 88 percent. "In Q1 2011 Android was nearly neck-and-neck with iOS in terms of developer interest," the Appcelerator/IDC report states. "In the past year, developer interest in both Android platforms has begun to wane...We believe this is mostly due to the fragmentation Android continues to experience and that Google seems unable to curtail, and the continued success of Apple's iPhone and iPad."

Android fragmentation isn't going away. But neither is Android's stranglehold over the U.S. smartphone market, which is why developers can't simply ignore the platform. Android powers 50.1 percent of all smartphones nationwide, up from 46.9 percent in November 2011 and a leap of 17 percentage points compared to a year ago, research firm comScore reported earlier this month. iOS trails a distant second at 30.2 percent. Instagram undoubtedly enjoyed a thriving business catering exclusively to the iOS segment, but it seems unthinkable that Facebook would have paid $1 billion for the app without an Android version in the pipeline. Cross-platform social sharing is the lifeblood of Facebook's business, after all. It wants to be everywhere users are, and most mobile subscribers are on Android.

The timing of the Instagram acquisition speaks for itself. As recently as a week ago, Android owners curious to see what Facebook paid $1 billion to acquire would have visited the Google Play storefront and found zilch. Now more than 80 percent of U.S. smartphone owners can download Instagram to their devices. That's a massive addressable market. There's unlikely to be another Instagram, and the proverbial Next Big Thing will almost certainly target a totally different facet of the mobile user experience. But whatever that next breakout app turns out to be, its developers won't ignore Android, either.--Jason