How two whizz-kids made a billion dollar app in 551 days

Two years ago, Instagram didn't exist. It still hasn't made a penny in profit. So why did Facebook just have to have it?

It's all a question of momentum. That's the difference between the millions of online ideas that simply melt away and the handful, like Instagram, which keep rolling and growing until they deliver the life-changing pay-day of which every start-up founder dreams.

The photo-sharing network first appeared on Apple's App Store on 6 October 2010. It was the same day David Cameron first addressed a Tory conference as Prime Minister. But whereas the Prime Minister's fortunes have been mixed in the short time since, Instagram's rise has been relentless. It had a million users within two months. And it has kept expanding since.

Thanks to Facebook's $1bn (£630m) buy-out, Kevin Systrom and Mike Krieger have become vastly wealthy overnight while still in their 20s, but their discovery of such a winning formula was a drawn-out process. On the road to honing the Instagram app, they left behind a series of failed projects. Mr Krieger worked on an app that aimed to counter Seasonal Affective Disorder (SAD) by offering sufferers the rays of sunshine in photos posted by users living in warmer climates.

Meanwhile Mr Systrom, who had formerly worked for Google, set up a location-based web service called Burbn, which didn't go exactly according to plan. Burbn never got past a few hundred users, but it allowed Mr Systrom – who, according to the website TechCrunch, raised $500,000 in seed funding for the project – to develop his programming skills, just as the sunshine project was an essential learning curve for Mr Krieger, an engineer and user-interface designer.

Those users who had signed up for Burbn mostly used it to upload photos of their visits to bars and cafés. Mr Systrom recognised that he was on to something and Burbn duly became the skeleton model for Instagram. The Instagram app allows users to take photos using a variety of filters, with names such as "Toaster", "Lord Kelvin" and "1977", giving their images a distinctive retro look. The formula has proved globally popular. Crucially, the pictures can be shared across a host of social-media sites, from Facebook and Foursquare to Twitter and Tumblr.

By last June, the app had five million users and it has added to that number at a rate of about two million a month. The surge in interest was fuelled by celebrity endorsements from Justin Bieber, Kim Kardashian, Snoop Dogg and then Barack Obama, who all took out accounts. Bieber in particular was a huge driver of traffic from his army of 20 million followers.

When the Facebook founder Mark Zuckerberg clinched his $1bn purchase of the 18-month-old start-up this week, Instagram had a user base of 30 million updating five million photos every day.

The size of the deal brought gasps of astonishment even in a world that has witnessed the buyouts of MySpace (bought by News Corp for $580m in 2005), YouTube (bought by Google for $1.65bn in 2006) and The Huffington Post (bought by AOL for $315m in 2011), Facebook's reasons soon became clearer.

Until last week, when it released an Android App, Instagram was only available on Apple devices. The development has given the application an even greater momentum. Within 24 hours of being available on Android it found one million new users. After six days it had registered five million Android downloads.

So, does the Instagram deal herald a new dot.com boom? Probably not. Mr Zuckerberg, who will allow Instagram to remain as a separate brand, was making his first major acquisition. Among start-ups in the UK, Mind Candy – the company behind the Moshi Monsters brand – seems best-placed to enjoy a big pay-day. But the market remains cautious. Instagram might be worth $1bn this week. But it could turn out to be a fad.