How Instagram Makes Money

Jul 19, 2022 By Susan Kelly

In May 2012, Facebook (now Meta) purchased the photo-sharing application Instagram for one billion dollars of cash and shares. Many Wall Streeters were astonished. The time was when Instagram had just two years of existence, several 13 employees, and was not earning any revenue.

In the year 2019, Instagram produced $20 billion in advertising revenues in the first quarter 2019, according to a Feb. 2020 Bloomberg report. Around 69% of American marketers planned to allocate most of their influencer budgets in 2020 on Instagram. According to a Bloomberg Intelligence report, Instagram was worth $100 billion in 2018. It was announced just a few days before that by Instagram that they had hit the one billion users daily milestone. That's right; Facebook got a cash cow for feed for chickens' price.

Instagram's Strengths

It has a young audience. Around 85% of teenagers are on Instagram, while 31% claim they use it as their top application. The app's users are known to use links to find out more. Around 130 million people clicked on commercial links to get more information about a product. They are looking forward to seeing ads. Around 90% of online shoppers avoid following a brand, and 50% are more interested in a brand after seeing an advertisement for the item or service.

Instagram and Facebook

In 2019, over 98% of Facebook revenues came from advertising. In the entire year, the company earned $69.7 billion in fees for advertising, and a large part of this revenue was directly derived from Instagram. While separate figures aren't released, research from analysts suggests that growth in advertising on Instagram surpasses the growth of its main competitor. In fact, in Merkle's Digital Marketing Report, advertising spending on Instagram increased by 177% over the year, which ended at the end of the second quarter of 2018 in comparison to only 40 percent growth for Facebook in the same period.

Ad Impressions on Instagram

Additionally, the impressions on Instagram in the same period were up 209% over the previous year against the negative 17% increase for Facebook. Ad impressions are measured when a person who visits the site can view the site's page, which contains an advertisement. In the Internet marketing industry, ads are effective; however, ad clicks are more effective. Clicking on an advertisement can be positive for the user and leads users to the product's website. Advertising impressions are considered an important indicator of ad clicks. The more people who see the advertisement, the more the number of hits it will get.

The Inexorable Growth of Mobile

Instagram prospers because of its loyal and expanding mobile users, who reached one billion users in June 2018, when the mobile presence of Facebook was significantly smaller. Since then, mobile has been an increasing segment of Facebook's advertising. It accounted for 89 percent of its revenue from ads in 2017, compared to 84 percent in 2016.

A Visual Medium

When Facebook purchased the app, Instagram was primarily focused on sharing images. Within one year, it added video capabilities. The advertising on Instagram is getting more sophisticated. One feature lets advertisers show slideshows and links to websites that are not on Instagram. Carousel ads allow multi-page print advertisements for mobile phones. So far, this kind of advertising has been a challenge to many of Facebook's largest internet rivals and has enabled Instagram to take over a large portion of the market.

Like many of the big names in the field of social media, Instagram began as an idea that was fun but without a specific path to earning. With Instagram and Facebook, advertising has become the main revenue source. Since it is a fundamentally visual application, Instagram is a natural platform for advertising with a brand. In addition, as computers move away from desktops, particularly among millennials, Instagram is well-positioned to become the most popular platform for advertising in the 21st century.

Creators Tools

Creators are the heartbeat of content and the source that is the main ingredient in users' engagement and growth. If an app relies on user-generated content, rewarding users for creating content with the help of money can encourage them to create more content and regularly create with competitors such as YouTube & Twitch paying content creators, platforms that do not pay less attractive for creators. Thus, Instagram has been rolling out features geared towards creators that will help them earn profits from Instagram and build an obligatory relationship with its followers. According to a report from Verge, Instagram shares a 55% share of profits from advertisements displayed through IGTV and plans to compensate for advertising on Reels.

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