Instagram is one of the most popular photos and video-sharing apps worldwide. It has more than a billion monthly active users. However, how does Instagram make money? The answer is straightforward-Instagram makes money argely through advertising.
Let’s dig further and understand Instagram’s business model.
How does Instagram make money?
Instagram is a visual app, it makes an ideal social media platform for the advertisers to showcase their products. It makes money mainly through digital advertising, Instagram Shopping, and Creator Tools.
Instagram makes money mainly through digital advertising, the same as Facebook. The ads are displayed on feeds, stories, Explore, Reels, and more. They usually look like normal posts, but you can find words like “paid partnership”, and “sponsored” on them.
Brands can advertise their products in various forms including photo ads, video ads, carousel ads, collection ads, Shopping ads, Reel ads, etc.
The Cost Per Click (CPC) for the Instagram feed is estimated at around $3.56 as per Business of Apps.
Earlier, Instagram shared a part of its ad revenue generated from IGTV with its creators, similar to that of YouTube and TikTok. However, IGTV has been discontinued.
In photo ads, advertisers can create an Instagram post for their products to entice a user. These posts will appear in Instagram’s feed.
Instagram also gives advertisers an option of including CTC (call-to-action) in these posts. They can add a link to their business page.
Instagram also allows advertisers to market their products and services in the form of Instagram video ads. Brands just have to create engaging, powerful, short videos around their products/ services.
The In-Feed video ads can be 60 minutes long. However, if the ad is short, it is usually more effective. These also include the CTC button, similar to that of a photo ad.
In Carousel ads, users can swipe through a list of photos or short videos curated by the brand. These ads are ideal for those brands who want to advertise multiple products and tell a multi-part story. Again, just like photo and video ads, these also contain a CTC button that will lead them to the brand’s website.
A brand can put up its ads in between Instagram stories. These can be full-screen images or video ads that pop up between a user’s stories feed. The call-to-action feature is a bit different for instagram story ads. There is a feature called ‘swipe-up’ that advertisers can use to direct users to their business site.
Engagement for stories ads is very high as there are more than 500 million users viewing Instagram stories every day.
Also Read : How does WhatsApp make money?
The Instagram Reel has instantly grown popular since the time it was launched. Ads are shown in between reels, similar to that of story ads. They are full-screen vertical videos and can last up to 30 seconds.
There are more than 1 billion monthly active users and according to data 90% of Instagram users follow at least one business account. Now, the Instagram app has enabled users to view and purchase products, without even leaving the app. For this, businesses have to enable the Instagram Checkout feature.
Instagram Shopping ads take users to the product description directly within the app. Also, brands have to set their Instagram Shopping catalog to enable Shopping ads.
These shopping ads are one of the most popular ways to advertise your brand on Instagram.
These ads appear in the Explore tab of Instagram, it is a section where users discover new content and accounts based on their daily Instagram habits. These ads can be in the form of both images and videos.
The content in the explore page is constantly changing, so the explore ads are usually placed besides relevant content. Also, these ads do not appear on the Explore grid. However, they are shown when someone clicks on a picture or a video from the Explore tab.
These ads are played in midroll of an IGTV video. They can last up to 15 seconds and users may also have an option of skipping them. Similar to that of ads that appear in YouTube videos. It generates 55 percent of the revenue generated from each view.
IGTV ads are available to users who have Instagram Creator accounts. However, they are only present in some countries including the USA, UK, and Australia. Instagram is planning to expand to other countries very soon.
Collection ads are a blend of carousel ads and shopping ads. These ads will enable brands to showcase their products directly from the product catalog.
When a user clicks on the ad, they are directed to Instagram Instant Experience Storefront, where they can read more about the product and proceed to checkout.
In 2016, Instagram launched Shoppable posts. These posts allowed brands to tag products, just like how users tag their friends. Shoppable posts are very beneficial for brands as they reduce the friction of the purchasing process. The sponsored post is a great way of increasing your brand awareness.
In 2020, it also introduced Instagram Shops. It enabled users to visit an Instagram shop linked to a business profile. Once they are in the Instagram shop, they can browse through different products, explore collections, and purchase products, without leaving the app.
The collections in the Instagram shop give brands to customize the shopping experience for their target customers. Creating an Instagram shop is easy and free. To get started, you just need to have an Instagram account linked with Instagram business.
Creator tools are the most vital part of content. Instagram is highly dependent on its user-generated content. So, Instagram pays users to encourage its users to constantly produce content.
Instagram had started IGTV ads, wherein the ad revenue was shared with the creators.
Creators can earn money from badges, which are given by fans when a creator does a live stream.
Users have to pay real money to buy these badges for their favorite Instagram influencer. If a user who has purchased a badge asks a question during the live stream, their comment is highlighted. Creators received 100% of revenue from the badges they have received, Instagram does not take any commission.
Instagram Funding, Valuation, and how much money they’ve made
Before being acquired by Facebook, Instagram had raised a total of $57.5 million of funding in over 5 rounds as per Crunchbase.
Instagram’s parent company Facebook, does not give a breakdown of Instagram’s revenue in its financial statements. However as per Statista’s estimates, In 2020, Instagram generated $ 17.4 billion in ad revenues in the United States. It is predicted that Instagram will reach roughly $ 40 billion in annual ad sales in 2023.
Interesting Instagram Stats & Fun Facts
- 90% of people on Instagram follow at least one business.
- Instagram is the most popular social media platform in India, with 180 million users.
- Instagram has 1 billion monthly active users.
- Instagram is Gen Z’s favorite social media platform.
- About 1 in 2 people surveyed have used Instagram to discover new brands, products, or services.
- The average engagement on Instagram business account posts is 0.83%
- 44% of people surveyed use Instagram to shop weekly, using features like shopping tags and the Shop tab.
- 91% of recently surveyed active Instagram users say they watch videos on Instagram weekly.
Instagram was not called ‘Instagram’ when it was started in 2010 by Kevin Systrom. He was working on an app named Burbn, which was the prototype of Instagram. Soon, Systrom raised a $500,000 seed round from Baseline Ventures and Andreessen Horowitz that allowed him to work full-time on this venture. It allowed Systrom to hire new people and at that time he also found his co-founder, Mike Krieger, who was also a Stanford Graduate, just like him.
After that, Burbn primarily focused on photographs, specifically those taken on mobile devices. They also came up with the idea of incorporating filters in the app. That’s what gave them traction and made Instagram grow exponentially to 15 million users by the end of 2011. Back then, mobile phones did not have high-resolution cameras. By applying these filters, users could turn a low-quality photo into a high-quality one.
In 2012, just before Instagram’s IPO, Facebook acquired it, for $1 billion in cash and stock; on one condition that the company would remain independently managed. After that, Instagram’s monthly active user rate kept on growing rapidly. In 2016, it had more than 500 million active users; that number touched 1 billion in 2018. However, in 2018, Instagram’s founders resigned because of irreconcilable differences and the gradual erosion of autonomy.
Can you make money on Instagram as an Influencer?
Instagram is the most preferred platform for social media marketing and influencer marketing. You can earn money as an influencer in various ways on Instagram.
The most lucrative way of making money on this app is through sponsored content and brand deals. These include doing sponsored posts, by collaborating with a brand and posting an Instagram video, story, or reel about their products, and charging money for the same.
However, influencers do not have to limit themselves to branded content. An influencer can also earn income by doing affiliate marketing. For instance, they can place an affiliate link in their Instagram bio and earn a commission whenever their Instagram followers click that link. They can even sell their merchandise by using Instagram Shop and earn profit.
Instagram creators can also earn money through badges, which are given by fans when a creator does an Instagram live. Influencers could earlier earn money through the IGTV ad-revenue sharing program. However, in 2022, it discontinued the IGTV app.
You do not require 1 million instagram followers to make money on Instagram. An Instagram influencer with less than 100,000 instagra followers can also earn money via this app. These influencers are called “nano” or “micro” influencers.
It is believed that micro-influencer has more engaged followers, hence brands want to collaborate with them. In short, the follower count does matter but what matters more is engagement. However, for earning good money, you need to be patient, it will only happen in the long term.
Top 5 influencers on Instagram
Cristiano Ronaldo is the most followed account on Instagram. He has more than 440 million followers. Another footballer who is among the top influencers on Instagram is Messi with 326 million followers.
In second place is Kylie Jenner, who has close to 336 million followers. As per a report by HypeAuditor, she has gained 86 million new followers in 2021, which makes her one of the fastest-growing Instagram influencers.
Then there is American actress and singer, Selena Gomez with 318 million followers. In 2021, Gomez’s account was one of the fastest-growing accounts, she gained 82 million followers, leading to a whopping 41% growth in the number of followers from the previous year, says a report by HypeAuditor.
In the fifth place, there is a WWE wrestler and an actor, Dwayne “The Rock” Johnson. He has close to 284 million followers. Kim Kardashian, Beyonce, Ariana Grande, and Kendall Jenner also make it to the top 10 list of Instagram influencers.