Robert McGovern

With In­sta­gram’s co-founders quit­ting Face­book, are we about to see a more ag­gres­sive pur­suit of ad dol­lars on the plat­form? By

Campaign Middle East - - NEWS -

Seem­ingly out of the blue late last month, In­sta­gram’s two co-founders Kevin Sys­trom and Mike Krieger, who had both re­mained with the com­pany since it was ac­quired by Face­book in 2012, both abruptly re­signed from the so­cial me­dia gi­ant. The rea­son seems to be that CEO Mark Zucker­berg had be­come over­bear­ing in his con­trol of the com­pany, want­ing to take the app in a di­rec­tion that the founders dis­agreed with.

While this is a bomb­shell in-and-of it­self, the fact that it comes hot on the heels of the two What­sApp co-founders, Jan Koum and Brian Ac­ton, also quit­ting Face­book back in April for sim­i­lar rea­sons, points to a broader move­ment. De­spite Zucker­berg be­ing tra­di­tion­ally quite ac­com­mo­dat­ing to the founders of the com­pa­nies that have been ac­quired by Face­book over the years, it seems that he is grad­u­ally start­ing to ex­ert his in­flu­ence and take a more ac­tive role in the busi­ness side of things with these com­pa­nies. So what has changed? While In­sta­gram ini­tially re­lied on Face­book to help launch and scale its ad­ver­tis­ing of­fer­ing, now it is Face­book that re­lies on In­sta­gram for fu­ture growth. While rev­enue and user growth on Face­book is flag­ging, In­sta­gram is boom­ing. In the lat­est earn­ings call in July, the com­pany fore­cast a con­tin­ued slow­down in rev­enue growth and a slim­ming of profit mar­gins, but dis­closed that the grow­ing num­ber of ads on In­sta­gram is an in­creas­ingly sig­nif­i­cant con­trib­u­tor to Face­book’s over­all rev­enue. It also em­pha­sised an in­tent to se­cure more ad dol­lars from In­sta­gram. Ac­cord­ing to es­ti­mates from KeyBanc Cap­i­tal Mar­kets, last quar­ter In­sta­gram gen­er­ated an es­ti­mated $2 bil­lion of Face­book’s $13 bil­lion in ad rev­enue, which amounts to about 15 per cent of the to­tal. This is es­ti­mated to grow to about 30 per cent by 2020, but while that may be im­pres­sive by it­self, this 30 per cent of to­tal rev­enue is pro­jected to ac­count for up to 70 per cent of the com­pany’s new rev­enue, which would mean that In­sta­gram is driv­ing the vast ma­jor­ity of Face­book’s rev­enue growth. It is this fix­a­tion on per­pet­ual growth that is wor­ry­ing for In­sta­gram users. As In­sta­gram be­comes more and more im­por­tant to Face­book’s bot­tom line, there is a con­tin­ued risk that we will see the plat­form be­ing overly com­mer­cialised.

Users have been drift­ing away from Face­book re­cently, not just be­cause of ‘fake news’ or pri­vacy breaches, but also be­cause much of the re­cent growth in ad rev­enue has come from smaller com­pa­nies that have clogged the News­feed with spam­mier con­tent. While early cor­po­rate ad­ver­tis­ers tend to be big brands or smart start-ups with rel­a­tively high-qual­ity ads, over time that qual­ity tends to dip. As a plat­form ma­tures, there is a clear trade off be­tween mak­ing it more ac­ces­si­ble to smaller ad­ver­tis­ers, and main­tain­ing the qual­ity of ads, a com­pro­mise that can af­fect the aes­thet­ics of the plat­form in gen­eral.

The worry for In­sta­gram is that some­thing sim­i­lar could hap­pen to it too, and that this could be more strongly felt as lower qual­ity ads could jolt the user out of the pol­ished, pic­ture-per­fect world of the In­sta­gram feed. We are al­ready start­ing to see this in ef­fect in Dubai, with ads for mas­sage par­lours and fur­ni­ture-mov­ing com­pa­nies that look like they were cre­ated by an eight-year old on Mi­crosoft Paint. Not to men­tion the raft of wannabe in­flu­encers that pay to pro­mote their own posts in a bid to grow their fol­low­ing, and sub­se­quently, their ‘in­flu­ence’.

In­ter­est­ingly, the Sto­ries for­mat is rel­a­tively un­tapped from a mon­eti­sa­tion point of view so far. In fact, Face­book has at­trib­uted some of the com­pany’s slow­ing rev­enue growth to in­creased In­sta­gram Sto­ries us­age. That is, more and more users are watch­ing Sto­ries at the ex­pense of scrolling through the feed. But you can be sure that Face­book is eye­ing this up as prime real es­tate for growth, and it has re­cently launched an ini­tia­tive to en­cour­age SMEs to run ads there. Ex­pect to see your lo­cal dog walker or handy­man pop­ping-up in an In­sta­gram Sto­ries ad in the not-too-dis­tant fu­ture.

Ul­ti­mately, an in­crease in ads com­bined with a re­duc­tion in the qual­ity of these ads af­fects the user ex­pe­ri­ence and the over­all qual­ity of the plat­form. If In­sta­gram too be­comes chock-full of trashy ads, the peo­ple who moved from Face­book to In­sta­gram to get away from the bom­bard­ment might just move on to some­where else again in time. Gen­er­ally speak­ing, this has been one of the more suc­cess­ful ac­qui­si­tions in tech his­tory, with Face­book play­ing it ex­cel­lently so far, wait­ing for just the right mo­ment to in­tro­duce ads to In­sta­gram. It’s only been three years since In­sta­gram opened up its self-ser­vice ad plat­form to a broader mar­ket in Septem­ber 2015. While this cer­tainly is not a long time in the grand scheme of things, it still has to play it care­fully or risk turn­ing In­sta­gram into an in­hos­pitable waste­land.

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