Feature: how does Instagram draw its advertisers?

Business Review USA charts the rise of Instagram and its developing relationship with Facebook, a partnership that is reaping rewards for advertisers.

Photo-based social media network Instagram is one of the fastest growing social media networks around. 

Founded seven years ago, its numbers are staggering. In 2016, the Pew Research Center found that 32 percent of adults online used Instagram, second only to Facebook. In comparing the numbers to Facebook, the percentages skew more towards women and younger users. In the US, 26 percent of men and 38 percent of women are on Instagram as opposed to 75 percent of men and 83 percent of women on Facebook. 59 percent of people aged 18-29 are on Instagram in the US, while only eight percent of those over 65 use the platform, as opposed to 88 percent of 18-29s and 62 percent of over 65s use Facebook. 

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Another big reveal that the data showed regarding Instagram was the frequency with which people used it. While again Facebook is used most frequently, Instagram comes in second once more, this time coming in way ahead of the other measured social networks like Pinterest, LinkedIn and Twitter. Of those who used the site, 51 percent used Instagram daily, 26 percent weekly and 22 percent less often. Twitter, next in line to Instagram in usage, frequently showed its users as being 42 percent daily, 24 percent weekly and 33 percent less frequently. And the next in line, Pinterest, only had 25 percent of its users on the network daily.

That Instagram has managed to grow so rapidly since its 2010 founding is impressive, but Facebook at that same age was also showing impressive growth. What is truly astounding, and what sets it apart from the example which Facebook set, is Instagram’s ability to take that growth and turn it into the ability to make money.

When did Instagram start making money?

In order to answer this question, it’s important to take a look at the social network to define all social networks: Facebook. Facebook launched in 2004, but did not put any real effort into making an income until 2012, the year it went public. It was almost two years older than Instagram before it began to implement any sort of cohesive business plan.

Although it already had over one billion users at that time, its initial IPO offering of over $104 billion made it the butt of many jokes, especially in the initial days, when the stock dropped. Of course it was those who bought and held the stock that ended up laughing, all the way to the bank, as $104 billion, as astronomically high as that seemed for any initial offering, let alone one of an internet company, turned out to be fully justified.

Instagram, however, has taken a very different but nonetheless connected journey. At the start, Instagram was always popular, amassing users quickly, targeting a youthful audience but not off-putting to older users. And like Facebook, in the very beginning, Instagram did not seem particularly concerned with making money. 

Business Insider wrote in 2011 how the new but impressive social network might be able to capitalize on its success. While it mentions the idea of advertising or sponsored posts, it warns that that tactic is much more likely to turn users off and besides, the platform isn’t well suited for selling stuff. The author believes the platform will have much better luck with a subscription model or by charging API developers. Of course, this article couldn’t be further off the mark.

Charging for social networks has yet to catch on, and Instagram is notoriously against allowing anyone to develop tie-in software for use with their site. Moving just one year into the future, and Instagram still seems much more interested in amassing users and engagement than it does in creating profit, but then it happens. Facebook (not yet public) pays a cool billion to own Instagram. And before there were jokes about Facebook overvaluing itself, there were the jokes about Facebook overvaluing Instagram. Who pays $1 billion for something that doesn’t make any money and doesn’t seem particularly inclined to do so?

But someone knew what they were doing. It was a good way to make money. Exact numbers are hard to come by, because Facebook does not share breakdowns of its profits with Instagram, but we do know that in 2016 Instagram doubled their advertising base. It is making money and growing fast.

Nothing is as big as Facebook

In the battle amongst social networks to win advertising dollars, there is always going to be the elephant in the room. And by elephant I mean Facebook, it’s always there, it’s always huge and there’s no getting around it.

But while all of the other social networks must work against Facebook on some level, and must offer something which Facebook does not, or create a different sort of business model, Instagram, owned by Facebook, is free to work in concert with Facebook. And while the amount of advertising dollars in the world are finite (although the amount being funnelled into social networks is growing fast), and all social networks have to compete with each other to get them, there’s another major factor: data. 

Data is worth big money, but it’s also worth a lot to advertisers. The more data a company can offer, the more precise, and more effective any advertising can be. And once Instagram fully implemented advertising to a broad range of companies, large and small, it offered that advertising integrated through the Facebook advertising, so that the data gathered by both platforms could be used to best target the promotions. When you purchase an ad on Instagram, you’re putting it on a platform with about 700 million users, but you have added to that the data of a platform with over two billion users to help target your ads.

A more balanced approach

From that alone, it’s easy to see how Instagram might trounce its competitor social networks, but let’s take a quick look at how else it comes in ahead of the others. Compared to Twitter and Pinterest, Instagram strikes a better balance. While Instagram does skew more female, Pinterest really skews heavily towards female users. While there are a lot of people on Pinterest, and in many ways it’s a great platform for selling, it is limited by only being appealing to a more limited audience than Instagram. 

Twitter, while broad in topic, has high user engagement amongst some users, but many more are casual. And while Twitter has recently stepped up attempts to be increase images and video, 140 characters is not the best way to sell things. Twitter is an amazing way for brands to interact directly with consumers, but that takes a great deal of resources for a relatively small payoff. Instagram, like all great advertising, is able to use the universal to create the idea of the intimate feeling.