Monetizing Instagram – The Plan for Ads

Facing pressure from now-corporate parent Facebook, Instagram is moving forward with plans to start monetizing their service. The plan revolves, predictably enough, around embedding targeted advertisements in users feeds. The platform will roll out within the next year.

The person leading this charge is 35 year old Emily White, the new Director of Business Operations who came from Facebook after the acquisition. According to the Wall Street Journal, she’s led a new internal assessment of their services and begin establishing an analytics team. The plan highlights the new priorities of parent-company Facebook, which, in addition to keeping rivals such as Twitter at bay, must now appease shareholders as well.

Facebook purchased Instagram for $1 billion last year, although the company has never made a profit. Instagram’s active userbase is around 150 million, and is still growing steadily. From last year, they added roughly 25 million more users.

Perhaps even more important than the number however, is the demographic makeup of Instagram users. The service is used primarily by teens and young adults, a coveted market for brands. Indeed, most large brands are already using Instragram in hopes of attracting followers, making Ms. White’s offering of premium-placed ad spots an even easier sell.

Whether or not Instagram’s userbase will be put off by the ads remains unclear. Services such as Gmail, Facebook, and Twitter have all succeeded in offering free services with the caveat of ads. One might even ask if most Instagram users will even notice them – after all, plenty of users posts are effectively ads already.

Ms. White has at least a few companies interested. Last week she held with meetings Ford, William-Sonoma, and Coca-Cola.

About 

Born in Alaska, Cameron is now a resident of Nashville, TN. He graduated from Sewanee: The University of the South with a degree in English and Political Science. He enjoys following emerging technology and its impact on business. Follow Cameron on Google+, or email him with any questions or comments.


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Comments

  1. Jordan Schneider

    It’s nuts how some apps today have hundreds of millions of users, can be valued at a billion dollars, but still have no business model! I suppose we’re living in a world where audience size matters more (to some degree) than revenue. But at the end of the day, how much value does a big audience really hold within the context of a business? It’s interesting to think about. You can build something really cool that everyone likes to use, but figuring out how to monetize it can be really tricky. So what happens when you figure out there isn’t a way to monetize that big audience you’ve been building over the years? Sounds like bad news to me.
    I’m really skeptical that an app like Instagram can figure out an elegant/scalable revenue model. So I’ll be interested to see what the fallout is from that.

  2. Cameron Graham

    Jordan Schneider Definitely. Right now I think established brands (especially tech brands such as Facebook that have to deal with shifting loyalties), are willing to pay a premium just to gain access to these markets. But if the only strategy these companies have is to put ads in users feeds, then I have a hard time seeing these services sticking around long enough to generate real long term revenue and growth. Also, a lot of Instagram is pretty much product advertisement already, so perhaps a model where brands had to pay to just be on the service would make more sense here. I also saw that Snapchat wants to monetize through ads as well, but first they have to design a new interface since they don’t have a “feed.” Unsustainable.

  3. Cameron Graham

    Jordan Schneider Definitely. Right now I think established brands (especially tech brands such as Facebook that have to deal with shifting loyalties), are willing to pay a premium just to gain access to these markets. But if the only strategy these companies have is to put ads in users feeds, then I have a hard time seeing these services sticking around long enough to generate real long term revenue and growth. Also, a lot of Instagram is pretty much product advertisement already, so perhaps a model where brands had to pay to just be on the service would make more sense here. I also saw that Snapchat wants to monetize through ads as well, but first they have to design a new interface since they don’t have a "feed." Unsustainable.

  4. Jordan Schneider

    I’m really skeptical that an app like Instagram can figure out an elegant/scalable revenue model. So I’ll be interested to see what the fallout is from that.