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August 26, 2014

Facebook is up in every possible way. Shares up 170%. Earnings per share up 121%. Revenue up 61%. This has primarily been fueled by an explosive growth in mobile advertising. There’s still a lot of room left for this to grow, but it begs the question: Beyond mobile, what will Facebook’s next great source of profit be?

What about that little photo-filter app called Instagram? Slowly but surely, the stage is being set for wide-scale ads on Instagram.

 

Why Do Ads on Instagram Make Sense?

Below, we’ve laid out reasons why ads on Instagram make sense, signs that a wide-spread ad platform is imminent, and some of the challenges Facebook and Instagram will face along the way.

 

Usage Patterns Bordering On Addiction

Without mass activity, nothing else really matters. It’s the hardest, most important thing to achieve as a consumer app. Instagram is an addictive app. That’s not an exaggeration — there are numbers to back it up. Most Instagram users are in the app 6–7 days of the week:

Read Ryan Stuczynski’s full piece, highly recommended, on mobile habits.

 

And this is simply looking at days per week that a user checks Instagram. We know that the average Facebook user checks their feed 14 times a day — what’s that number for Instagram? It could be as high, if not higher.

 

Proven Ability To Serve Relevant Content

Ads only work if they benefit all parties involved. Instagram should bring in revenue from them, advertisers should find that they drive meaningful results, and consumers should find them relevant, and often, helpful.

For years now, Instagram users have been telling the system about themselves. Like by like, hashtag click by hashtag click. We’ve slowly taught Instagram all about ourselves. And now, with a recent redesign to “Explore”, we’ve begun to see proof that Instagram has been learning and is ready to do something with all of that information. Up until April, “Explore”, the 2nd tab on Instagram, had been quite static. Content there bordered on Myspace-like. Celebrities and memes dominated.

 

Fast forward to today, and “Explore” has been transformed. Content there is unique to each user. All of a sudden, mine is filled with images of baseball, New York City, coffee, Miami University, and ice cream (my favorite things). Many of these images have been coming via branded accounts like Blue Bottle, Jeni’s, Homage, and various local media publishers. In other words, small to medium-sized businesses — exactly the same group that dominates usage of Facebook advertising.

 

An Extensive Team of Ad Experts

This isn’t the most exciting reason, but it’s critical. Facebook has a team thousands strong that have lived and breathed advertising with small to medium-sized businesses for years now. It’s easy to imagine some of these teams will spin off to focus on Instagram efforts, avoiding timely recruiting efforts to build advertising teams.

 

A Pilot Program Is Underway

Larger brands like Levi’s, Taco Bell, Starwood, and PayPal have been running Instagram ads for nearly a year now. This is pretty standard. High-profile brands are nearly always given access first before an ads platform is unleashed to the masses.

 

Early Results Have Been “Successful”

Much remains to be seen here (more on that below) but Instagram wasquick to come out with stats and case studies after initialad runs with partners. They touted numbers like “9.8 million people reached,” and “24-percent lift in ad recall.”

These are mostly vanity-level awareness metrics, but they prove scale and open the door for more meaningful measurement down the line.

 

Facebook & Instagram Profiles Are Being Synced

Word came out last month that Mercedes was running a campaign in which Facebook users who saw one of their Instagram ads were treated in a unique way.

The implications here are massive — when Facebook and Instagram “share” information back and forth about a specific user, the profile they can build is perhaps the most comprehensive and accurate ever built in the history of the internet.

 

Ads Are Being Served More Often

Just this past week, Instagram shared that ads would be shown to users more often. Anecdotally, I’ve seen more ads in my stream in the past week than the combined previous months of ad campaigns combined.

 

Tools For Scale Are Being Built

Letting millions of advertisers on a platform at once is a logistical nightmare. It becomes less difficult, however, when you build self-service tools for advertisers. This is exactly what Instagram has just released, albeit a light version 1.

 

The Challenges Ahead

Instagram is, in nearly every way, on the path to building a massive advertising platform that makes their company profitable (Something the founders have noted they want to achieve). Still, there are challenges to overcome, namely:

Linking Outside The Great Wall of Instagram

Currently, it’s pretty hard to get *out* of Instagram once you’re in it. Links within the main feed are automatically disabled. Clicking on an ad does nothing (while a double-tap, as we all know, creates a like).

The only place where links work is deep inside a profile, in the bio section. This leaves accounts to come up with ways to draw attention to links that look like this:

 

You have to imagine this will need to change in order for advertisers to get the meaningful metrics they need — ones on their own sites/apps, and not just within Instagram.

 

A High Creative Bar

Founder Kevin Systrom once described Instagram as “visual crack.”

Advertisers, the challenge to create visual ads worthy of this tagline is on. Systrom has claimed he’s looked at every ad on Instagram so far to get his approval. A smart thing to do early on, but the Systrom-check won’t scale. Instead, Instagram will need to come up with a set of creative guidelines strict enough to keep in the spirit of “visual crack” but loose enough to be realistic for small business owners to create ads on their own.

 

Instagram’s Next Year

Change doesn’t always come easy. The next 6–12 months for Instagram will be messy. Users will bemoan a changing ecosystem. Ad-free rivals will pop up and gain traction.

Instagram, however, has shown every indication thus far they know how to go about this the right way. They’ve started slow, kept a critical focus on preserving quality creative, and have begun to build tools to equip advertisers with the know-how to play well in their ecosystem.

My bet? On a Facebook earnings call in the not too near future, we’ll hear about revenue growth bolstered by Instagram. Meanwhile, we’ll keep adding filters, double-tapping, and occasionally, clicking on a very relevant, very beautiful Instagram ad.


Ready to get started with Instagram advertising? Learn more about Bamboo’s Instagram advertising expertise and services >

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