Instagram makes money via visual advertising. Acquired by Facebook for a billion-dollar in 2012, today, Instagram is integrated into the overall Facebook (now rebranded as Meta) business strategy. In 2018, Instagram founders Kevin Systrom and Mike Krieger left the company as Facebook pushed toward tighter integration of the two platforms. In 2022, Instagram is the most successful product still, in Meta’s portfolio.
| Elements | Analysis | Implications | Examples |
|---|---|---|---|
| Customer Segments | – Instagram’s primary customer segments include individuals seeking a visually engaging platform for sharing photos and videos, connecting with friends, and discovering content. – Businesses, brands, and advertisers constitute another crucial customer segment, utilizing Instagram for advertising, brand promotion, and e-commerce. – Influencers leverage the platform to engage with their audience and collaborate with brands. | – Instagram focuses on creating a user-friendly interface to attract and retain individual users. – Businesses and advertisers are drawn to Instagram’s large and engaged user base for promotional activities. – Influencers benefit from Instagram’s features to connect with followers and collaborate with brands. | Individuals, businesses, brands, advertisers, and influencers are all customer segments that engage with Instagram. |
| Distribution Strategy | – Instagram primarily distributes its platform through mobile apps available on iOS and Android devices. It also offers a web version for desktop users. – The platform is accessible globally, enabling users worldwide to download the app and sign up for accounts. | – Mobile app distribution ensures accessibility for users on smartphones and tablets. – Global availability extends Instagram’s reach and user base. | Instagram is accessible through mobile apps on iOS and Android devices and a web version for desktop users. |
| Marketing Strategy | – Instagram’s marketing strategy focuses on user acquisition and engagement. It uses targeted advertising to attract and retain users. – It partners with businesses and influencers for sponsored content and collaborations, promoting the platform to a wider audience. – Instagram also uses data-driven insights to refine its marketing strategies and improve user experience. | – Attracts a large and diverse user base through effective marketing and advertising. – Collaborates with businesses and influencers to showcase the platform’s capabilities. – Utilizes data analytics to enhance user experience and marketing effectiveness. | Instagram employs targeted advertising, collaborations, and data-driven insights to attract users and businesses to the platform. |
| Competitive Advantage | – Instagram’s competitive advantage lies in its visually engaging platform that encourages creativity and self-expression through photos and videos. – It has a massive and active user base, making it an attractive platform for businesses and advertisers. – Instagram’s advertising options, e-commerce features, and user-generated content ecosystem set it apart in the social media landscape. – Its continuous innovation and user-centric approach contribute to a sustained competitive edge. | – Offers users a visually engaging and user-friendly platform for self-expression and connection. – Provides businesses with effective advertising and e-commerce opportunities to reach a diverse audience. – Fosters user-generated content and a sense of community. – Innovates to meet user and business needs while generating revenue. | Instagram’s competitive advantage is derived from its visually engaging platform, large user base, advertising capabilities, e-commerce features, user-generated content ecosystem, and commitment to innovation. It continues to evolve to meet user and business demands. |
| Photo and Video Sharing Platform | – Instagram is a popular social media platform that focuses on sharing photos and videos. – Users can upload and edit images and short videos, apply filters, and share them with followers or publicly. – It provides a visually engaging experience that encourages creativity and self-expression. | – Attracts users who want to share visual content and connect with others through images and videos. – Offers a user-friendly interface for creating and sharing visual content. – Fosters user engagement and content creation. | Users use Instagram to share photos and videos, apply filters and effects, and connect with friends, influencers, and brands. |
| Advertising Revenue | – Instagram generates a significant portion of its revenue from advertising. It offers businesses and advertisers various ad formats, including photo ads, video ads, carousel ads, and sponsored stories. – Advertisers can target specific demographics, interests, and behaviors, making it an attractive advertising platform. | – Provides a revenue stream that supports Instagram’s operations and growth. – Attracts businesses looking to reach a large and engaged user base. – Allows advertisers to tailor their campaigns to reach specific audiences effectively. | Businesses and advertisers create and run Instagram ad campaigns to promote their products, services, and brand to a wide and engaged user base. |
| Shopping Features | – Instagram has introduced shopping features that enable businesses to sell products directly within the platform. Users can discover, explore, and purchase products from brands they follow without leaving the app. – The “Shop” tab and product tags in posts facilitate seamless e-commerce experiences. | – Creates new revenue opportunities for Instagram by facilitating e-commerce transactions. – Enhances the user experience by enabling convenient shopping within the app. – Attracts businesses interested in social commerce and direct sales. | Businesses leverage Instagram’s shopping features to showcase and sell their products directly to users, streamlining the e-commerce process. |
| Stories and Reels | – Instagram’s Stories and Reels features allow users and businesses to create short, ephemeral content that disappears after 24 hours. – These features encourage frequent content creation and engagement, particularly among younger audiences. | – Keeps users engaged by offering fresh and temporary content. – Provides businesses with opportunities for creative and interactive storytelling. – Appeals to younger audiences who enjoy the format. | Users and businesses utilize Stories and Reels to share temporary and engaging content, fostering user engagement and creativity. |
| Influencer Partnerships | – Instagram is a platform of choice for influencer marketing. Influencers collaborate with brands to create sponsored content, promote products, and engage with their followers. – This strategy extends a brand’s reach and credibility through trusted influencers. | – Attracts influencers who want to monetize their content and collaborate with brands. – Offers businesses an effective way to leverage influencer audiences for brand promotion. – Enhances user engagement through authentic influencer partnerships. | Influencers partner with brands on Instagram to create sponsored content, promoting products and services to their followers and reaching a wider audience. |
| User-Generated Content (UGC) | – Instagram encourages user-generated content through features like hashtags, mentions, and sharing. Users contribute to brand narratives and community building. – UGC enhances brand authenticity and engagement. | – Fosters a sense of community and belonging among users. – Increases brand authenticity through user contributions. | Users create and share content related to brands and products, contributing to brand narratives and fostering engagement. |
Instagram background story
Instagram has been one of the most successful startup stories of the last decade.
It quickly turned into a multi-billion dollar company with millions of users.
It is worth exploring some key facts that surround its story, as it will show how what in startup lingo is called “pivoting” or changing course (but it just means understanding what people want and what problem they’re experiencing that you can solve) is critical to get your startup off the ground!
Speed of execution and pivoting by keeping it simple
Before Instagram became one of the fastest-growing apps in the world, it was called Burbn.
Kevin Systrom had secured an investment, which allowed him to focus on that app for a few months.
Mike Krieger – who would also become Instagram co-founder – was a power user of Burbn, so he joined Kevin Systrom to get Burbn off the ground.
However, after a few months, the whole project seemed doomed.
As Kevin Systrom pointed out in an Interview for the Tim Ferriss Show:
We decided to pivot, and this is where keeping it simple comes in. We actually got to the idea for Instagram by taking away features from Burbn, not by changing it all. A bunch of the features of Burbn: one, you could check in at a place, but two, you could add a photo of what you were doing at that place.
And he went on:
It turns out people kind of liked the check-ins; they thought it was pretty lame because it was a “me too” thing, but they loved showing people what they were doing. They loved taking a picture of the bar, the restaurant, the whatever. We realized to keep it simple, we were going to have to cut every other feature of Burbn — which we did — and we just kept the photo part.
Thus, rather than keep focusing on all the features that the app offered.
Kevin Systrom and Mike Krieger circled down to very few basic features that would make the app special.
And then it came to the idea that would transform Burbn into Instagram. Systrom was exhausted as he struggled to get the app off the ground.
And while on vacation, he had a walk with his wife.
He asked her why she thought the app wasn’t exciting on the walk. As pointed out in the Tim Feris Show interview, Systrom’s wife said:
I don’t think I’m going to use it because my photos aren’t that good.
Systrom remarked to his wife:
Why don’t you think your photos are good?
And his wife replied:
Well, all your friends post these amazing photos and they’re all filtered and stuff.
Systrom swiftly replied:
That’s because they use filters!
And so his wife said:
Well, you should probably add filters!
As soon as they returned to their room, Systrom added the first Burbn filter: X-Pro II.
A big hairy audacious goal
As Kevin Systrome, founder of Instagram, pointed out in one of their first Instagram posts:
When we started working on Instagram, we tried to imagine what the world would be like if everyone could contribute media to an open, transparent, and international community.
This was at a time when Instagram had 80 users! When Systrome announced the photo app in October 2010, he communicated three key problems Instagram was trying to solve:
Source: instagram.tumblr.com
As soon as Instagram launched, it reported explosive growth.
As Systrom, Instagram founder, recounted:
“We crossed 10,000 users within hours, and I was like, ‘this is the best day of my life.’ This is amazing, right?”
He said.
“At the end of the day, it kept growing so much I thought, ‘are we counting wrong?'”
Problem/solution fit
When Instagram launched, it was solving three key problems at the time:
- At the time, phone cameras hadn’t the resolution they have today. And Instagram made it possible to transform low-quality pictures by supercharging them with filters.
- The company built upon the concept of social media, which had already proved successful, and improved on it by curving its own niche, photo-sharing.
- It focused on making the platform easy and smooth for users, which allowed them to upload photos quickly and integrate them with other social media platforms.
By September 2011, Instagram would reach 10 million users!
By the end of 2011, Instagram would reach 15 million users, and its engagement kept growing.
Facebook acquisition and integration
If there is one strategy Facebook’s Marck Zuckerberg has mastered over the years is the acquisition of wildly successful products to integrate within Facebook.
Facebook acquired Instagram for $1 billion in 2012.
As pointed out by the NY Times at the time,
“It’s a notable move for Facebook, which has exclusively focused on bite-size acquisitions, worth less than $100 million.”
At the time, Facebook wasn’t that strong on mobile, and the move to acquire Instagram made perfect sense from that standpoint.
As pointed out by Mark Zuckerberg at the time:
For years, we’ve focused on building the best experience for sharing photos with your friends and family. Now, we’ll be able to work even more closely with the Instagram team to also offer the best experiences for sharing beautiful mobile photos with people based on your interests.
That’s why we’re committed to building and growing Instagram independently. Millions of people around the world love the Instagram app and the brand associated with it, and our goal is to help spread this app and brand to even more people.
On a separate note on the Instagram blog, in April 2012, Kevin Systrome announced:
When Mike and I started Instagram nearly two years ago, we set out to change and improve the way the world communicates and shares. We’ve had an amazing time watching Instagram grow into a vibrant community of people from all around the globe. Today, we couldn’t be happier to announce that Instagram has agreed to be acquired by Facebook……It’s important to be clear that Instagram is not going away. We’ll be working with Facebook to evolve Instagram and build the network. We’ll continue to add new features to the product and find new ways to create a better mobile photos experience.
As happened with WhatsApp not long after the acquisition, Instagram changed its privacy policy to allow integration with Facebook products.
The most important component of the Facebook business model is its advertising machine.
Thus, the first and critical step Facebook took when buying Instagram was gradually integrating its advertising network within Instagram.
Indeed, only in 2015 would ads be widely available on Instagram.
For an organization, it is critical to develop a sustainable revenue model that can be integrated into its overall business model.
And Facebook successfully completed this transition between 2015-2016.
Facebook goes all in with Instagram
The integration between Facebook and Instagram proved so successful that by 2021, Facebook, which makes most of its money from advertising revenues, also transitioned successfully to mobile.
Which, as of 2021, represented over 97% of Facebook advertising revenues!
We don’t know exactly how much of those revenues were coming from Instagram, but we can easily assume that most than half of Meta’s advertising revenues come from Instagram.
Instagram and Facebook are still among the largest digital advertising platforms on earth.
Zuckerberg takes over
Fast forward to 2018, as Systrome pointed out in a blog post:
We’re planning on leaving Instagram to explore our curiosity and creativity again. Building new things requires that we step back, understand what inspires us and match that with what the world needs; that’s what we plan to do.
Lately, they were frustrated with an uptick in day-to-day involvement by Zuckerberg, who has become more reliant on Instagram in planning for Facebook’s future
Thus, this move makes it clear that Facebook and Instagram were to become tightly integrated.
Instagram mission and key partners
Our mission is to bring you closer to the people and things you love.
Thus, Instagram emphasizes creating relationships through visual storytelling.
This is the primary payoff for users.
However, as Instagram makes money through advertising, it also promises to businesses willing to advertise on the platform to get “proven results” on the platform.
Therefore, we have three primary payoffs for each of its key partners:
- Users: build relationships through visual storytelling
- Businesses: advertising their brands and products
- There is also a third persona that is a key partner for the Instagram business model: a power user or the so-called influencer. What does the influencer get? The payoff for the influencer is the ability to build a following that can be resold to businesses’ ad campaigns to promote their brands.
Why do influencers matter so much to Instagram’s overall business strategy?
Instagram is among those digital platforms which master and automate the creation of content.
It did that both via algorithms (like feed algorithms, automated algorithms able to scale content recommendation, filtering, spamming, and so on); and via user-generated content.
User-generated content is the key ingredient of long-term success for platforms like Instagram, Pinterest, Facebook, Quora, Twitter, and many others.
However, the average user produces mediocre content (which still matters for the ongoing engagement of people on the platform).
There is a power user, the influencer – become a digital profession for many – able to produce higher quality content, for free, for the platform.
Thus, the user-generated content produced by the influencers gains strategic and critical importance.
Understanding the relationship between the digital platform (Instagram) and the influencer is important.
While influencers with a monetizable following make money with their content by selling sponsored posts and campaigns on their profiles, Instagram could not capture that value directly.
But as the platform grew, it offered functionalities, like “swipe ups,” that enabled influencers to monetize their following by tracking the actions people take on their content.
To understand how Instagram capitalized on that, we need to look at how the platform makes money.
How does Instagram make money?
As part of Meta’s products, Instagram makes money via advertising revenues.
We can’t know for sure exactly how much Instagram makes, as Meta does’ break down for us its revenues.
However, a good chunk of Meta revenues seems to be driven by Instagram.
Breaking down the Instagram revenue model
Instagram has features that allow users and businesses to monetize their presence on the platform.
Reels
In an attempt to fight the quick rise of TikTok, Instagram integrated another short-form video content within its platform: Reels.
Introduced in August 2020, Instagram explained:
Reels invites you to create fun videos to share with your friends or anyone on Instagram. Record and edit 15-second multi-clip videos with audio, effects, and new creative tools. You can share reels with your followers on Feed, and, if you have a public account, make them available to the wider Instagram community through a new space in Explore. Reels in Explore offers anyone the chance to become a creator on Instagram and reach new audiences on a global stage.
Reels have become the new standard for social platforms, like Instagram, as the rise of TikTok has made short-form video formats into the rule-of-thumb type of content.
Stories
In 2016, Instagram introduced its “stories.”
This short video is generated by the users, disappearing after 24 hours after its publication.
Instagram introduced that format to emulate Snapchat.
It is possible for advertisers to create campaigns within those stories and invite users to take action to generate conversion for their brands.
Other Ad formats
Brands can also monetize their presence on the platform via photos, videos, collections, and carousels. Indeed through the Facebook Ads Manager, it is possible to launch paid photo campaigns on Instagram.
Those businesses can perform ads based on the following:
- Location.
- Demographics.
- Interests.
- Behaviors.
- Custom Audiences.
- Lookalike Audiences.
- Automated targeting.
The metrics that advertisers can look at when promoting their brands follow into three categories:
- Awareness: which takes into account reach and frequency
- Consideration: it takes into account website clicks, the reach and frequency, and video views
- Conversion: it takes into account website conversions, dynamic ads, mobile app installs, and mobile app engagements
Key takeaway
- Instagram got started in 2010 to solve three primary issues: make photos beautiful by adding filters, making it easy to integrate and share them across several platforms, and offering a smooth. experience in uploading and sharing those visual experiences
- The company grew quickly, to the point of being acquired by Facebook in 2012 for a billion dollar.
- Facebook kept it independent and allowed it to develop as a separate unit within its business model until 2018.
- In 2018, Instagram founders left the company as Facebook Inc. tightened up its grip and integration on Instagram.
- According to some analysts, Instagram will generate most of Facebook Inc. revenues in the future.
- Instagram is a user-generated platform that leverages algorithms to scale this process, and it monetizes its platform via visual advertising that happens through a few features (like stories, pictures, videos, carousels, and collections).
- The core platform to advertise on Instagram is the Facebook Ads Manager, which makes it possible for businesses to zoom in on their audiences to offer targeted ads to improve awareness, and consideration and generate conversion.
Key Highlights
- Instagram’s Founding and Pivot: Instagram started as Burbn, a multi-feature app. However, the founders, Kevin Systrom and Mike Krieger, realized that simplifying the app and focusing on photo-sharing was the way to go. This led to the birth of Instagram.
- Explosive Growth: Instagram launched in 2010 and quickly gained popularity. By September 2011, it had reached 10 million users, and by the end of the year, it had 15 million users.
- Facebook Acquisition: Facebook acquired Instagram for $1 billion in 2012. This move was aimed at enhancing Facebook’s mobile presence and integrating Instagram’s visual sharing into its platform.
- Business Model Evolution: Instagram gradually integrated its advertising network into the platform, and by 2015, ads became widely available. This transition helped Facebook (now Meta) leverage Instagram’s popularity for advertising revenues.
- Founder Departure: In 2018, Instagram founders Kevin Systrom and Mike Krieger left the company amidst increased involvement from Mark Zuckerberg. This signified tighter integration between Instagram and Facebook.
- Revenue Generation: Instagram’s primary revenue source is advertising. Businesses can advertise through various formats like Stories, photos, videos, carousels, and collections. The Facebook Ads Manager facilitates targeted advertising to specific audiences based on demographics, interests, and behaviors.
- Monetization Features: Instagram introduced features like Reels and Stories, allowing users and businesses to create short-form videos and interactive content for monetization purposes.
- Influencer Economy: Instagram’s influencer economy emerged, with power users and influencers creating high-quality content. The platform introduced features like “swipe ups” to enable influencers to monetize their following.
- Integration and Success: The integration of Instagram with Facebook proved highly successful. By 2021, Facebook transitioned successfully to mobile, and a significant portion of its advertising revenues is attributed to Instagram.
- Ongoing Advertising Power: As of the latest available information, Instagram remains one of the largest digital advertising platforms, contributing significantly to Meta’s advertising revenues.
Read next: Facebook Business Model, TikTok Business Model, YouTube Business Model.
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