It’s hard to remember now, but for the first three years of its existence, Instagram was ad-free.
When it finally incorporated ads, shortly after Facebook bought the photo-sharing platform for $1 billion in 2012, the language around the rollout promised users it wouldn’t be too much, too soon: “We’ll focus on delivering a small number of beautiful, high-quality photos and videos from a handful of brands that are already great members of the Instagram community,” the company said in a 2013 blog post announcing the change.
But now it’s 2020, and my Instagram feed is littered with shoe companies I’ve never heard of while Squarespace and LinkedIn nestle their promoted Stories between those from my friends and family. Instagram’s ad-less era is but a fleeting memory.
Since first monetizing Instagram more than six years ago, Facebook has not regularly released specific revenue figures in earnings reports (Facebook went public just one month after acquiring Instagram). But the photo-sharing app has become a sizable portion of Facebook’s total revenue, according to a new Bloomberg report that says Instagram alone accounted for $20 billion in ad revenue in 2019. While Facebook won’t confirm that number, $20 billion makes up a quarter of the social network’s total revenue—a sizable piece of the pie.
This news isn’t exactly a shock for those who help brands advertise on social media.
Bridget Jewell is the social creative director at Minneapolis-based agency Periscope, which represents brands like Target, Trolli and Truvia. If anything, Jewell is surprised Instagram doesn’t make up a larger portion of Facebook’s revenue.
“We’ve seen the shift of the major target audiences that our clients are going after spending more time on Instagram than they are Facebook, and it feels like the ad revenue shift would have happened more quickly or more than it already has,” Jewell said.
Any stagnation in the platforms’ growth could be attributable to their limited slate of ad formats—mainly in-feed and Story-based offerings, she noted.
Jess Richards, global head of social at Havas Media, which works with clients including Disney, Emirates and Michelin, said that over the last 12 months, most of the brands she works with have advertised more and more on Instagram. “The user growth on Instagram globally, as well as time spent in-feed and with Stories, is a quick indicator as to why advertising revenue is increasingly coming from Instagram,” Richards said. “They’ve made all targeting capabilities consistent across their network of apps, with the ability to easily optimize ad formats within the feed and stories across all platforms.”
Additionally, they both cited the commerce function of Instagram as a major factor in its growth. “Part of the popularity of Instagram is that it’s the online shopping marketplace of discovery,” Jewell said. “If you’re online shopping—just browsing, like you would be in a mall—you’re most likely doing that on Instagram. Pinterest used to be a part of that, and they still are to an extent, but it’s just not the same as it is on Instagram.”
Instagram’s Checkout feature, which gives users the ability to make purchases within the app—a function introduced last March—has helped direct-to-consumer brands “start to get recognized on a larger scale where they might not have been able to be.”
Asher Chester, director of performance marketing at Agency Within, which represents Nike and Hugo Boss among others, says that Checkout is still “in its infancy” and once Instagram adds more features and more users become comfortable making purchases through the platform, that’s when Instagram could really see a revenue bump. “I think the biggest opportunity for Instagram to continue expanding their revenue contribution is really unlocking Instagram Checkout and making that mainstream as well as finding ways to incentivize even more influencers to get involved on the platform,” Chester said. “If they are able to figure that out, I think you’ll only see that percentage increase.”