Instagram: 150 million Users Yet No Revenue

Instagram is unique in its attitude towards revenue. Although it is owned by Facebook, which has always had its priorities on making money, Instagram have shown they are very conscious of the users feelings and try to make it a positive user app, rather than a money making goldmine which it could be. As a user of both Instagram and Facebook there is a clear difference between the revenue generating features present all over Facebook and the pleasant absence of these features on Instagram.

From the beginning Instagram has been an app making no revenue from its users, their photos and the interactions. The main goal for the company was to grow its network, perfect the features and create a future for this photo sharing centre. Many people questioned Facebook’s purchasing of Instagram, for a value of $1 billion in 2012, as Instagram had no revenue. Instagram was in desperate need of financial support when, after two years, it had losses of $2.7 million [1]. It was then able to raise $50 million in the next financing round in March 2012, just 1 month before Facebook purchased the company.

The CEO, Kevin Systrom said, in August 2012, that the company has considered monetizing the app but

“Nothing came of it” [1].

However, in December 2012, Instagram announced it was going to change its privacy policy, in order to start making some money. The change would allow the company to sell user’s photos for advertising of the app. This received harsh backlash, with vast numbers of users, from individuals to The National Geographic, vowing to stop using the app if these changes came in [2]. I feel this was a bad move by Instagram as lots of the users, including myself, really appreciate the more private and personal side to the app. The company quickly reversed their plans and wrote on their blog saying,

“Our intention in updating the terms was to communicate that we’d like to experiment with innovative advertising that feels appropriate on Instagram… it is not our intention to sell your photos”  [3].

About 9 months later these “innovative advertising” ideas came into action. It started with 5 companies being allowed to have promotional ‘sponsored’ posts which would appear on user’s newsfeeds, different ads appearing based on photos and pages the user has liked on both Instagram and Facebook and what their Instagram friends have liked[4].

 Image

Figure 1 [5]

Above is an example of one of Ben and Jerry’s ads. Instagram announced in December 2013, two months after the first advertisement post that the campaign was working [5]. The companies seem to be reaping the benefits of the advertising, with a large range of people throughout the world being subject to their products, the ads can generate hundreds and thousands of likes.

 Image

Figure 2 [6]

Although the actual value of gains for Instagram and these companies is still foggy following this update, it certainly shows that the people behind the app are starting to really think of revenue possibilities and implement changes which it did not show in its first few years.

~ Finola Barry

[1] – http://www.businessinsider.com/instagram-finances-2012-8

[2] – http://ca.finance.yahoo.com/blogs/dashboard/instagram-100-million-users-yet-no-revenue-193855273.html

[3] – http://blog.instagram.com/post/38252135408/thank-you-and-were-listening

[4] – http://instagram.com/about-ads

[5] – http://www.forbes.com/sites/roberthof/2013/12/19/instagram-says-its-brand-advertising-campaigns-are-working/

[6] – http://www.businessweek.com/articles/2013-12-02/what-do-instagram-advertisers-actually-get-for-their-money

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