How Instagram Makes Money, Understanding Instagram Business Model

How Instagram Makes Money, Instagram Business Model and How does Instagram Make Money – Unicornomy Analysis

How Instagram Makes Money
How Instagram Makes Money

#Instagram is the new favorite amongst millennials, I guess almost everyone who I know is on Instagram and no one has a clue on how to use this right!  Anyways, I was doing some research on the advertising options that Instagram has and thought it would be awesome to know How Instagram Makes Money and Instagram Business Model.  Let’s look at some facts about Instagram before moving to Business Model of Instagram.

About Instagram, Funders, Founders and Facts

Instagram was started just for fun, just like other social networks, with no intention or clear visibility to make money any time in the near future.  It is a photo sharing app that does just one thing, share photos in a vertical array of pictures from millions of user accounts.

Instagram was created by Kevin Systrom and Mike Krieger.   They named this app as BurBn in the beginning but chucked it halfway after closing a seed round of 500K USD investment from Baseline Ventures and Andressen Horowitz – who btw have made a killing after FaceBook acquired them for cash and stock deal of 1 Billion USD.  FaceBook is known to make such outrageous purchases in order to strengthen its mobile user base and usage and thus it had also made a purchase of 19 Billion USD to purchase WhatsApp.  Both Instagram and WhatsApp had near Zero Revenue prior to acquisition by FaceBook.

Now that you guys have some background in Instagramming, Let’s now look at How Instagram Makes Money and Instagram Business Model.

Interesting Read: How does WhatsApp Make Money!

How Instagram Makes Money

Before we move on to understand How Instagram Makes Money it is necessary to understand the Business Model of Instagram we should be aware of the various tools and features that Instagram has to offer (because Instagram Business Model depends on these features).

Explore Tab

The explore tab in which some photos are featured (Opportunity for brands to use the Promoted feature) when a user clicks the tab.  Users can explore this section by using hashtags that they find useful.

Filters

Instagram has photo filters that users can apply to their images – this may be sold for a fee to Brands to advertise their images (like SnapChat does).

Lux

The Lux effect gives an option to adjust the exposure of the image through a 100-point slider.

Video

Instagram was a photo only sharing app.  Instagram started the video sharing to allow users to share videos (recorded or reshared) for lengths up to 15 seconds (similar to SnapChats 10 Second Videos) which was later extended up to 60 seconds.  Brands can share their Videos as well while promoting their Services and Products.

Instagram Direct

A Direct competition to SnapChat’s Business Model of directly sharing it to the user or a group of users (minus the disappearance) – Users can share photos and videos.

Instagram Stories

A Rip off from SnapChat Stories / Live.  Here Brands can sponsor promoted stories from FaceBook Ad-Dashboard.

Now that you’ve understood the features of Instagram, Let’s look at the Instagram Business Model to understand How Instagram Makes Money?

Instagram Business Model

Instagram’s Business Model depends on selling eyeballs and timeshare. Instagram makes all of its money from Ad Sales – The Ad Units are the exact same as the ones in Facebook Ads Manager, in fact, the ad settings to be displayed in the Instagram feed come from the ads Manager itself.  While you are setting up a FaceBook ad, you have an option to push the ad unit to Instagram as well.  Let’s look at some interesting use cases of Instagram Business Model below.

Instagram Business Model – Ad Unit Types

Business Model of Instagram has 3 Types: Image Ads, Video Ads and Carousel Ads.  They look as below:

Instagram Business Model
Instagram Business Model

Instagram Business Model – Call to Action (CTA)

How does Instagram Make Money by asking you to give them money to increase Instagram Following!  What a Business Model Boss!

Ads Can be used to target either of the following image’s contents and can be posts, pages, website, videos, app downloads etc.  which in turn enable the brand to attract more followers to their page.

 

How does Instagram Make Money
How does Instagram Make Money

How does Instagram Make Money – Facebook Earnings

Facebook does not split the earnings it does from various revenue sources so we are unable to identify the exact source of the ad revenue coming to them. Thus we are unable to answer How much does Instagram Make Money for Facebook.

Anyways, The next screenshot shows how the ads can be set up using Facebook Ads Manager:

How does Instagram Earn Money
How does Instagram Earn Money

How Instagram Makes Money – from Selling Data

Yes, you heard it right!  No one claims this but How Instagram Makes Money from selling data is clear from their updated terms and conditions use multiple variations to this :

Terms of use, state this “You agree that a business or other entity may pay us to display your username, likeness (using the hashtags that you share, the accounts that you follow, the shares that you do), photos (along with any associated metadata), and/or actions you take, in connection with paid or sponsored content or promotions, without any compensation to you”.

And after GDPR compliances they have slightly modified this but to no use!

Interesting to Read for Data Selling : How does Twitter Make Money

& This was later explained that this is confusing and Instagram would not sell your pictures to any advertiser or buyer! But who knows.  Their total earnings form a part of FaceBook’s earnings, so it is better if you guys head that way and read How Facebook Makes Money.

Interesting Read: How does FaceBook Make Money!

How Instagram Makes Money – Live Stories

Instagram apart from allowing to advertise a brand’s pages, image etc. also makes money by allowing sponsored stories, where the brand uploads a short video clip which captures the users’ attention because of the autoplay video in most of the phones.  Because of this Evan of Snap Inc has been calling out on Facebook for copying most of their ad formats.

Interesting to understand the above, Instagram competes with Many other players in the mobile app-based social network or chatting app in terms of MindShare of the user.  Because Instagram’s major user base is in the 18-35 category the most fierce competitor is SnapChat – on account of its similar user base and disappearing photos.  Here is the business model of SnapChat in the next link.

Interesting Read: How does SnapChat Make Money!

Disclaimer: The understanding of the How Instagram Makes Money, Instagram Business Model and How does Instagram Make Money is of the Author’s himself, neither any investor, banker or VC (local or global) or qualified consultants or the company have confirmed or explained the same to the author and the descriptions, stats, facts, and figures, if used, are either obtained through secondary web research or interrogation of relevant search professionals or other resources on the web.  Please use your own discretion to use this info when required and by continuing to read, you agree to indemnify the author & Unicornomy from the entire liability arising out of using this info on your own.

Unicorn Economy
Unicorn Economy is your answer to all startup related queries with respect to business strategy, business model analysis and consulting. One stop stop for business plan and financial model development.

1 Comment

  1. It’s quite easy to make money online. You can start your own business easily. Just create a website. You’ll have access to the entire web and unlimited selling potential.

    The risk and investment is so minimal, and the earning potential is huge. You can outsource freelancers for cheap to do all the technical parts.

    Just find your niche, you don’t need any previous knowledge or skills to build a website. All you need is the perfect idea!

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