The coder who runs this as a weekend project for $20 a month and a VPS may be able to create a similar product, but a version of Instagram with few other users,

The coder who runs this as a weekend project for $20 a month and a VPS may be able to create a similar product, but a version of Instagram with few other users, that is otherwise equivalent or better, is much less compelling. There is a strong social aspect to Instagram. If it were just a place to post photos that you can tweet a link to, it would have gone the way of twitpic, yfrog, lockerz, and a dozen other services that are still used, but get a lot less attention. In this way it’s different from a successful bootstrapped service like, say, Pinboard, which can become more popular through word of mouth but was still very useful when they had just one user. Gmail is another example of a service that’s still useful with just one user. So to be (as) useful, Instagram must have a lot of users, and must somehow attract them. A big marketing budget can help, although I don’t think Instagram has ever spent large sums on marketing. Simply being free, and good, helps a lot too though, and having enough servers to handle millions of non-paying users and developers talented enough to make it scale that well costs money. You are right that eventually they will need to make money for all this to make sense. It seems to me that they could eventually introduce ads or offer charge for more features. But assuming that ads or premium features could eventually make business sense for Instagram, I don’t think it’s completely nuts to have a phase of rapid VC-funded growth.