Burgess COMMENTARY

Peter Burgess

How Instagram Became A Cash Cow

As we mentioned earlier this week, Instagram’s ad business is growing faster than the speed of light.

By 2017, its ad revenues will grow more than four times in size to reach $2.39 billion, according to new estimates from eMarketer. By then, the mobile-first social network should represent nearly a third -- or 28% -- of Facebook’s total mobile ad revenues.

How is that possible? Wasn’t Instagram virtually unmonetized just a couple years back?

Well, yes. But, that’s certainly no longer the case now that Facebook is pumping the unit with ads tailor-made for mobile -- and, which, so far, appear to performing well among users.

Taking a big leap forward, this week Instagram is finally offering some sophisticated targeting capabilities to advertisers, as well as expanding its ad program across more than new 30 countries from Spain to South Korea.

Yes, Instagram’s ad technology is finally leveraging Facebook’s ads infrastructure --something brands have long begged for. That means they can now home in on audiences with particular interests like fashion, sports, cars and food.

The network is also testing new ad formats that achieve difference objectives, from Web site clicks to mobile app installs. Most notably, Instagram will now let brands serve up video ads of up to 30 seconds in length. There is no word on pricing yet, but the units are sure to set you back a couple bucks.

Instagram is offering a new Marquee mass-awareness ad that it promises will be perfect for events like movie premieres and new product launches. The network also recently announced the availability of landscape photo and video, which it says will give ads a more cinematic feel.

In testing, the new ads appear to be hitting a sweet spot with audiences. In fact, 97% of measured campaigns on Instagram have generated significant lifts in ad recall, according to internal figures.

Specifically, Gilt Groupe was recently able to drive an 85% lift in app installs, while designer furniture retailer Made.com’s ads yielded a 10% order value increase versus its benchmark.