Instagram’s business model revolves around making money through advertisements. Before Instagram was acquired by Facebook in 2012 they were not making any revenue, but in late 2013 they slowly began to monetize the company by introducing advertisements (Angelova). At a media conference hosted by Business Insider, Kevin Systrom, the CEO of Instagram, described three key factors the company needed to get right in order to become successfully monetized. First the company would need to build a large audience; when this conference took place Instagram only had 27 millions users but they have since grown to have 400 million users. Secondly the company would have to create a stage for advertisers to promote their brand and products. Today many companies use Instagram as a creative promotional tool, while maintaining a connection with their customers. Lastly Instagram would need to create tools that would allow the advertiser to use the app differently than the average user. Recently, Instagram has allowed companies to post videos that are 30 seconds long rather than the average 15 seconds. Through their present day growth it is clear that Instagram has successfully maintained the three key factors that are necessary to be successfully monetized.
With over 400 million users Instagram is one of the world’s largest advertising platforms (“Instagram Business”). When advertisements were first introduced only selected brands in the United States were able to advertise on the platform. Some of these brands included Lexus, Ben and Jerry’s, and Michael Kors. In September 2015, Instagram announced that they would be allowing any company within 30 countries to advertise on their platform. Advertisers would now be able to purchase advertising space through Facebook self-serve interfaces, such as Ads Manager and Power Editor. These programs are made to assist advertisers in creating ads for a specific platform.
On Instagram’s business webpage they specify that in order to advertise on their platform you do not require an Instagram account, you only require a Facebook account. Since Instagram uses the same advertising program as Facebook, you apply to advertise through the Facebook website. If a company without an Instagram account chooses to advertise on Instagram, the advertisement will be linked to their Facebook profile. The disadvantage of posting an Instagram advertisement with a Facebook account is that the company will be unable to respond to comments.
As Instagram has continued to grow, it is projected that they will receive $595 million in ad revenue by the end of 2015. By the end of 2017 it is projected that they will earn $2.81 billion, which is approximately 14% of the ad revenue for Facebook worldwide (“Instagram Mobile Ads Revenue”).
The projected rapid growth of Instagram’s ad revenue is due to their new advertising products. Compared to other social media platforms the price to advertise on Instagram can be quite costly. To advertise on Instagram it averages a cost-per-thousand views, or CPM, of $6.70, which is relatively high. This is due to the technology Instagram uses to target ads to specific markets. This technology is the same that Facebook uses and it posts advertisements that are specific to a user’s likes, interests, and location. Advertising on Instagram is also very valuable as users are 2.5 times more likely to click on an Instagram advertisements than on any other social media platform (Griffith).
What makes Instagram advertisements unique is the way they are integrated into the platform. The creators of Instagram wanted advertisements to look as organic as possible because they wanted them to fit seamlessly into people’s feeds. The last thing they wanted was for users to look through their feed and feel bombarded by advertisements. An important point made by Van Dijck was, “If users feel that they are being manipulated or exploited, they simply quit the site, causing the platform to lose its most important asset” (40). Before Instagram was monetized they carefully considered how they would advertise to their users as they did not want them to leave the platform. In order to prevent this, Instagram would analyze each advertisement before it was posted. This allowed Instagram to only post advertisements that they truly believed in, thus preventing spam content.
On Instagram there are three different types of advertisements: picture, video, and carousel. Picture posts are very common and until recently they always had to be perfectly square. Video posts allow companies to create short 30 second clips, which is longer than the 15 second clip the average user can post. Carousel advertisements are the newest addition to Instagram and they allow users to swipe through multiple pictures in one post. In order to identify an advertisement on Instagram, the top right corner of the post will say “Sponsored” in blue writing. Another addition to Instagram advertising is the ability to download or purchase through the Instagram app. With the release of the new iPhone, users will be able to use the app more efficiently as they will be able to use Apple Pay and Force Touch to purchase or download items.

In order to assist companies with advertising Instagram has set up a partner program. Through this program Instagram partners companies with other companies that can assist them with content creation, buying advertisements, and monitoring feedback. Through Instagram’s business model it is clear that they put a lot of thought into what they want to post on their app. It is very important to them that users do not feel like they are being exploited, but they also want their app to be used as a space for advertisers to be creative. As they continue to grow, it is clear that advertisers will continue to use their platform as a means to reach their consumer.