Instagram Business Model – How does Instagram Make Money

Do you know Instagram users are spending an average of 28 minutes on the platform every day in 2020? It is the second most used (logged in) social media site that people use daily after Facebook.

Instagram, an American social networking service or platform for photo and video sharing was launched in 2010 by Kevin Systrom and Mike Krieger. Though it was first started as a fun platform, it is now a $100 billion company.

The world’s popular social media site, majorly accessible as an app needs no introduction. Frankly speaking, the majority of people across the world, have the app on their phone already. With its interesting and unique features, in no time it became people’s favorite and of course, a go-to online destination at least once in a day. The platform has over 1 billion monthly active users and over 500 million daily users as of 2020 according to a survey.

Okay, have you ever wondered how this giant fun and innovative social media service makes money? Let’s see that in this article.

However, let’s know more about the platform prior to that.

What is Instagram?

As said Instagram is a photo and video sharing platform where users can join for free, click, like, share and upload any media. It was initially started as a purely fun platform for such activities. Even the founders had never thought this fun loving platform would grow to such a global giant and successful platform.

However, Facebook, the world’s largest and most popular social media platform realized its value. It bought Instagram in 2012 for around $1 billion (in cash and stock).

Hence, Instagram since 2012 became a growing social media platform owned by Facebook. Since then its features, and business model were evolving and thus making a great impact on social media. In fact, it has become a great revenue contributor to Facebook later on. Though, Facebook and Instagram work independently in the same niche, both compliment each other very well.

If you are curious about how Twitter makes money, read here.

Okay, now let’s see the features, uses and strategies of Instagram to better understand how it makes money.

The basic actions one could perform on Instagram are: capture pictures, shoot videos, upload photos & videos, save them, share posts, like, comment on posts, chat with other users and explore latest trends.

So, in short, Instagram which is commonly referred to as Insta and IG offers the following features.

  • Photos: Capture or upload photos to share with friends or public
  • Videos: Capture or upload photos of 60 seconds to share with friends or public
  • Stories: Post stories that appear to friends and disappear after 24 hours
  • Explore Tab: To find latest posts by public figures or brands
  • Instagram Direct: That lets you chat with other users
  • Filters: A wide array of filters to edit photos and videos
  • IGTV: Lengthy videos, mostly ads, recipes and DIYs etc
  • Shopping: A new feature that lets users shop directly within the app

Who Uses Instagram Mostly?

Instagram is used by both individuals and businesses to share and explore the most happenings. Interestingly, the individuals are not just the audiences but storytellers, public figures, and influencers. In fact, it is Instagram that boasted the growth of influencers.

To simply state the stats, Instagram has:

  • 1 billion monthly active users
  • 500 million people who use Stories daily
  • 52% of female users
  • 48% of male users

Stats Useful for Brands

  • 200 million users visit at least one business profile every day
  • 1/3rd of most viewed Stories are from businesses

So, now comes the actual part: What is Instagram’s business model? Let’s quickly jump into that.

Instagram Business Model

Instagram, though started as a free platform to share and explore photos and videos, it grew into one of the most earning social media platforms. 

Facebook bought it when it was not generating any revenue. In fact, until 2013, Instagram didn’t make any money.

Later, when the platform gained huge user base and popularity, it started to make money by letting marketers buy user’s attention. Meaning, it introduced the ad revenue model and allowed brands and marketers to promote their businesses or products to its users. Yes, its business model is brilliant and of course, the same as Facebook, Pinterest and other social networking sites.

Read: Pinterest Business Model – How does Pinterest Make Money

As you can see the stats above, it is a giant platform where a large crowd, especially millennials and adults are present. The stats attract advertisers as they see the platform as a potential space to drive customers to their sites. Finally, that is how Instagram makes money too.

Moreover, after Instagram had introduced ads and shopping features, its revenue increased, though there is no exact number.

How does Instagram make money?

As said earlier, Instagram is full of story tellers, influencers, brands and audiences (who might become customers). In short , it has all resources to help businesses grow. Isn’t it?

With huge information, fun and space, Instagram has grown as a tiny search engine for discovering things that make people happy. For example, users shop, explore, verify brands and interact with brands before they make any decision.

So, it makes money through ads and shopping features. You got the answer.

It is even estimated that by 2021 Instagram will bring around 41% of ad revenue to Facebook.

Instagram Ads costs anywhere between $0.70 to $1 per click. In some cases, an ad can go up to $5 per click based on the competition, industry, location, placements, user demographics and ad placements. The ad process goes as per bidding.

According to Instagram blog over 2 million advertisers advertise on Instagram every month.

Therefore, it is clear that Instagram is making tons of money from ads. Moreover, though the ad costs are higher on platform, marketers still target users on the platform due to the potentiality.

So, here are types of ads that Instagram leverages for advertisers to help them grow their businesses while growing its own revenue.

Read: Netflix Business Model – How does Netflix Make Money

Advertisements

1. Photo Ads: Photo posts that appear on feed with sponsored tag and also a CTA button

2. Video Ads: Video posts of time frame 120 seconds with CTA button

3. Carousel Ads: Multiple photos in a single ad which users can swipe and see

4. Collection Ads: Products or photos are displayed and can be swiped below an image or video

5. Story Ads: Ads that automatically disappears on Stories and are available in a slideshow

6. IGTV Ads: As you know IGTV is a long vertical space that plays videos. Marketers can run an ad on IGTV with a video that excites users to click “Learn More”

7. Ads in Explore: Users see the ads when they are exploring on the platform. This is almost similar to the ads on feed.

8. Facebook Advert: Promoters who don’t even have Instagram can advertise on the platform through Facebook.

9. Sponsored Instagram Posts: The posts that are already posted can be tagged as sponsored Instagram posts to reach wider audiences.

10. User’s Data: Instagram doesn’t sell user’s data directly as per their privacy policy. It uses the data to improve your experience on the platform and to show you related sponsored ads.

Shopping Ads

Checkout Fees: Instagram has made it easier to shop products users love on the platform itself. Users don’t need to leave the app to make purchases. 

It charges sellers checkout fees as their commission for allowing them to make sales.

Shopping Promotions: Sellers can promote their products through ads and reach wider audiences. The sellers need not necessarily sell on the app itself but on any other site.

So, this is how Instagram makes money. It makes money completely through advertising and shopping ads or options. 

How Successful is Instagram’s Business Model?

According to Bloomberg, Instagram generated $20 billion ad revenue in 2019. Hence, it is clear that it is one of the highest revenue generating social media platforms after Facebook which generated $29.9 billion.

Instagram is making billions. Also, it’s quite simple to say reasons for Instagram’s success both in popularity and revenue. So, here are top reasons why Instagram is successful.

  • Its Customer Centric Strategy

Instagram also became a major platform for marketing, it continues to deliver smooth customer experience. It strives to provide great service by introducing creative features and easy-to-use platform to customers no matter what

  • Large User Base

As the platform provides great user experience, it is growing its user base (and also keeping the users). Due to the large number of users, it is a sweet spot for advertisers.

  • Monetizing Algorithm

As Instagram has grown as a large platform for advertisers, it is monetizing users’ attention. Yet, it doesn’t disturb users with irrelevant ads.

  • Independent Platform

Users on Instagram don’t need to go out to perform any actions. Users can even shop directly on the platform.

The expenses of Instagram are technology, development, customer experience and marketing. However, it has more than enough resources to manage its expenses.

Bottom Line

Instagram which was created to share photos, videos and other media has now become one of the favorite places to connect with people and with brands. In fact, it was difficult to reach or verify brands before Instagram and even Facebook. Thus it has made a major revolution in terms of advertisements and user experience with its incredible features.

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