Instagram is beginning to look like the most lucrative bet Mark Zuckerberg ever made.
Facebook paid only $1 billion to acquire the popular photo-sharing platform back in 2012, and today, Instagram is expected to post upwards of $2 billion in ad sales by 2017. That figure comes from a new report by eMarketer, which also predicts Instagram will surpass the display advertising revenues of both Google and Twitter in the next two years.
We expect to see rapid growth in Instagram’s ad revenues this year and throughout the forecast period—driven by high demand for the social network’s new ad products, which will expand beyond branding to include direct response, the ability to buy ads via an API, and enhanced measurement and targeting features.
At first glance, it’s hard to imagine a relatively new platform like Instagram overtaking the online advertising juggernaut that is Google. But if you look at everything Instagram has going for it, the predictions start to look more credible:
Ad engagement on Instagram is off the charts
Brands are loving the results they’re getting from their Instagram ad campaigns, and with good reason. Instagram’s advertising platform is less than two years old, but big name CPG advertisers have already been posting impressive results. Last April, Taco Bell reported a 29% gain in ad recall (4X higher than control) for the rollout of its new breakfast menu on Instagram, and increased its following by 45% over the month long ad campaign. Its competitor McDonald’s posted a 47-point lift in ad recall for its “Signs of Summer” campaign in Australia, one of the highest Nielsen Brand Effect results seen to date globally.
And when you compare Instagram to Twitter, there’s no contest. According to data from Socialbakers, the top 25 most engaging brands on Instagram had an average post engagement rate of 3.31%, compared to 0.07% for Twitter. In addition, the top brands had 19 million profile interactions, compared to 502,000 on Twitter.
Display is Native, Native is Display
On other platforms (i.e. Google), when we think of display ads, we think of banner ads, which have a reputation for being intrusive, annoying and having miniscule conversion rates. However on Instagram, all the display ads function as “native ads.” They mimic the look and feel of organic Instagram posts, which is to say they are visually appealing, make use of popular hashtags, and are highly representative of consumer aspirations and desires. In a nutshell, they don’t look like ads, but rather the regular, beautiful content you would see posted by any other Instagram user. The only difference is users are guaranteed to see it in their timelines more than a few times a month. Even then, Instagram limits the frequency of the ads in users’ timelines to make sure they don’t feel too commercial and overexposed.
Ad tech powered by Facebook
Facebook’s advertising platform allows a remarkable level of granularity for ad targeting by demographic, location, or web-browsing information. In addition, (through Atlas) it has several features that enable cross targeting of audiences across multiple devices. As a Facebook acquisition, Instagram is expected to start offering many of the same features, which would make it even more attractive to marketers.
In a blog post about the report, eMarketer principal analyst Debra Aho Williamson said,
“Now that Instagram is opening up, there is a lot of pent-up demand. The rollout of new features over the next several months means that by the end of 2015, Instagram will have a host of new ad products for advertisers large and small. In particular, Instagram advertisers will be able to use a full slate of Facebook targeting tools, including the popular Custom Audiences feature. That will be a key drawing card.”
The Instagram experience is mobile-native and mobile-optimized
Not many platforms have figured out how to make plain old display ads look good on mobile. Simply shrinking a banner to fit into an already crowded mobile screen is a less than optimal user experience. Google and Twitter were not born in the mobile world, and have had to adjust their platforms to fit the mobile experience, with mixed results. However Instagram was mobile from the start, and hence all its content is optimized to look great on the device. It has wisely avoided putting ads on its desktop version, focusing on producing sponsored content exclusively for the small screen. In a world that is inevitably moving towards a mobile-only customer experience, Instagram has a huge advantage over other platforms that are expending time and resources in re-designing for mobile.
A new report from eMarketer predicts that by 2017, Instagram ad sales will cross $2 billion in ad sales.
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