9 Ways Facebook Could Monetize Instagram From 4 Startup Experts

Facebook has struggled to generate mobile revenue, which could stunt its potential. But Instagram could be the key to changing Zuck's fortunes. GRP Partners' Mark Suster, Big Spaceship's Karina Portuondo, Percolate's Noah Brier, and Ad.ly's Walter Delph share their ideas.

Call Sheryl Sandberg! Facebook stock, which rallied 32% since it was announced CEO Mark Zuckerberg would make his first post-IPO appearance on stage at TechCrunch Disrupt, is once again on the decline, and it looks as if the Zuck bump was short-lived at best.

The share-price drop comes following a report in Barron's that called the stock "still too pricey," and specifically questioned Facebook's potential to generate mobile revenue. The company has struggled to tap into the mobile market, and is said to be generating less mobile ad revenue in the U.S. than even Twitter, which has a much smaller user base. But its $1 billion acquisition of photo-sharing service Instagram was seen by many as an opportunity to tip the mobile scales in its favor. Will Facebook be able to monetize Instagram?

The problem, as Barron's Andrew Bary pointed out, is that Facebook's bet on mobile is "no sure thing." Due to condensed real estate on the screens of smartphones, Bary contended, Facebook isn't left with "much room to configure ads without alienating users." Even Instagram cofounder Kevin Systrom has acknowledged the startup's focus on scale rather than monetization. At a recent hearing in California related to the approval of the acquisition, state officials asked Systrom how Instagram generates revenue. "That's a great question. As of right now, we do not," said Systrom, who said the startup aimed to "grow something that people really loved."

So how can Facebook tap into Instagram to start generating mobile revenue? We asked four experts in the space to find out.

Mark Suster, angel investor and partner at GRP Partners

I think there is no wild idea to monetize Instagram. There are straightforward, practical ideas, and one would have to test people's willingness and interest in these types of products, but let's start with the basics.

Sell Ads
The most common one that people talk about is ad insertions. It would be very easy to insert ad-based products into Instagram. That's kind of obvious. When I say advertising, there are maybe five different ways you could advertise. You could, for example, have what are called interstitials, which means, if I look through 20 pictures, out of every 20 pictures, the twentieth is always an ad unit that's inserted into people's streams, like promoted Instagram photos. I could have tools for advertisers that help me to build more interactions--Instagrams, say, that are clickable. I'm not going to say it's inevitable that they do something like Pinterest, but there are 10 different ad products there, and that's only one of them.

Offer Premium Service
Other obvious low-hanging fruit relates to how the product is free now. So one could design a version that is premium. The nice thing when you're dealing at scale, even if people are willing to pay a modest sum, say $5 per month, and even if you're converting five to 10% of your user base...well, when you have 100 or 200 or 300 million users, that's a lot of money. Of course, there is a culture in social media of not charging people. But look at Dropbox. Dropbox charges people, and people seem willing to pay, and that's become quite a large business. So one could easily imagine a service where they design features that people are willing to pay for.

Print Products
I mean, we already know images can be monetized. Just look at Shutterfly. If you created an offline product, something related to printing, where I could take those moments--the photos that I love and that look good and that are filtered--and connect them with a way to print photo packs, or create albums, or to do mugs, or T-shirts.

Harvest Data
And the final component that is obvious low-hanging fruit is the data, and being able to sell the data. I know when you talk about selling the data, people assume you mean private confidential data. But that's not the case. There are opportunities to sell aggregate information that are valuable to people, either about people's shopping behavior or restaurant behavior, or what their interests are. Know more about individuals and who they're following and connecting with--these fabrics of networks have become very valuable data sources, and in particular Instagram has an attribute that's very similar to Twitter, which is that it's an open network. When you started using Instagram, just like Twitter, your starting assumption was, unless I made myself private, everyone was going to be able to see it. You know the data and photos are already public.

And there's a ton that can be done with the data. I'm involved with a company called DataSift, which has already built a very fast-growing business around helping to monetize Twitter data. I know firsthand how much businesses crave market intelligence that can be picked up from open-data sources. So let me just give some examples that won't seem so obvious. It's possible for governments to crack down on terrorism and hooliganism by looking at open-data sources like Twitter and Instagram. It's possible for people to make predictions that might help with crowd control by monitoring behavior. It's possible that in the legal field, as you're looking to do jury selection, and you're going in and interviewing jurors, to figure out what their biases may be with public data. A lot of that can be down at a lower cost without having to bring people in.

I could go on and on. You think about news sources. Right now, Twitter is doing a great job of aggregating real-time news. But in a world where Instagram is as widely diffused as Twitter, news organizations could aggregate real-time photos and they could do it in a way without having to have photographers on the ground. So say, okay, I know there was a major fire in the zip code 90272. I could mine the Instagram data from the last hour in 90272 if I wanted to look for images of the fire.

There's so much that could be done with public open data that people don't understand. Those are the immediate obvious business opportunities.

Karina Portuondo, senior strategist at Big Spaceship

Get Into Sponsored Filters
Well, one way would to be to monetize filters. Could Marvel sponsor a filter that changes your pictures into comic styles? Could the Met put a Renoir filter on your photos? Could Crayola put specific coloring filters on your photos? And so forth. Facebook could target it so people don't have an endless amount of filters to choose from.

Offer Promoted Pics
Of course, you could do promoted Instagrams like Promoted Tweets. But I see that as an obvious place to go. I don't think it's the most innovative thing they could do with Instagram. I'm leaning against the idea of Promoted Photos on Instagram, and leaning more toward more utility-based things--a way of marketing that users of Instagram would appreciate more than something they expect from a platform like Facebook or Twitter. So another kind of twist would be to do hashtag takeovers. I found myself recently since the update spending a lot of time in the Explore section, seeing who is using the same hashtags I am. That I think is an interesting stop for an ad placement. Like if #Catstagram was taken over by Purina, with all pictures of cats or dogs all over it.

Leverage Location, Deals
I also really think Instagram should be used like Twitter in terms of the one-on-one responses. So a lot of people are geo-locating their photos. We recently went to the Brooklyn Cyclone's game, and took tons of Instagram photos while we were there, which were all geo-located. What would've been cool is if there were deals, so say, if Nathan's, which is right down the street, commented on our pictures and said, "Enjoy the game! Come over afterward to get free waffle fries with purchase of a hotdog!" I think there is the timely, surprise-and-delight reaction that is getting common on Twitter that hasn't transferred over to Instagram yet, but should.

So for brands to get involved, I think it could be very similar to Facebook in that there's the lo-fi way to do it that's perhaps more manual. But then there could be packages where Instagram actually helps brands find the right people at the right time, and makes sure they get the right message.

Noah Brier, founder of Percolate

Sell Exposure
Well, first I'd say that now that I'm running my own business, I no longer try to tell people how to run theirs. But what I'd say for Instagram is that the basic model for brands on asymmetrical networks seems to have been solidified. Facebook created it: the ability to get fans and build your network, which solves a huge issue brands had, which is, How do I get people to pay attention? Facebook solved the audience acquisition problem. If you are willing to spend the money, you can have the audience. Facebook, Twitter, and Tumblr all have that model now.

The other side of that model, which all three platforms have, is the ability to promote content to additional audiences. So with Instagram, I suspect the end game is going to be the same as everywhere else. Ultimately brands want exposure. We've seen Instagram being used so far for behind-the-scenes looks. So GE has a really good Instagram feed that's basically behind the scenes. But it's for very specific reasons. Part of the company's mission over the last few years is to communicate that GE is a maker and an innovator and a real manufacturer of things. So going back behind the scenes is communicating that in a visual manner. It does what it needs to do. I don't think we need someone to leave [Instagram] to do that.

People keep asking about mobile advertising, and I think we're looking at it already. The mobile winners are going to be Facebook and Instagram and Twitter. Ultimately they're going to win because the ad product is content, and it translates perfectly to mobile. Like Promoted Tweets on Twitter, you don't need to do something special to make it run on mobile. It's just there. I think everybody is having these conversations about trying to find the silver bullet in mobile advertising. But I think it's here. You're looking at it.

And you also have to remember it's still very early on. Facebook only introduced Promoted Posts in the last three or four months.

Walter Delph, CEO of Ad.ly

Keep Building Value, Cash Out Later
My perspective is that Instagram is an amazing platform. The killer app for Facebook is photos. I used to help run Photobucket--I know photos are the killer app. And if you have people taking pictures, posting pictures, and distributing and sharing them, and not utilizing the Facebook platform, well that's a massive detriment to Facebook. So I think its acquisition of Instagram was partly a defensive move.

As to monetization, I believe there's a great opportunity with photos, but no one has really done it. If anyone is going to do it, it's going to be a Facebook or Google. But they haven't really figured out how to make money off of photos yet. The problem in mobile and with photos is that there aren't as many ad units that people can sell.

So we'll have to wait and see. I really don't have an answer to this one. If I did, I'd be a lot wealthier.

[Image: Flickr user Dan Buczynski]

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8 Comments

  • Jo Blackford

    interesting that no one predicted what was announced today - that instagram would license users photos for all eternity, effectively turning it into a gigantic stock photo source... perhaps because this move is alienating the vast majority of instagram users. I would be happy to pay $5 to join instagram, but I refuse to let them take my pictures and use them for whatever they want, whenever they want, without even telling me.

  • Me

    The thing that annoys me about ad based revenue models is they are hardly ever accompanied by premium pay options. I fully understand many people refuse to pay for services but ads drive me up the wall. I would happily pay a premium fee on all my social media to be free of the ads that constantly clutter up my feeds. I wish companies would at least give the option to pay.

  • Mandy Kilinskis

    I think sponsored filters is a great way to monetize Instagram. They have sponsored filters for the similar, but not social, Hipstamatic. It's always a delight to download a free filter and use it when manipulating your pictures, and the advertiser gets a spot on in their filter choices. And since the user won't have to pay and it's not thrust into their picture stream, they'd be the most accepting of that option.

  • John David Harris

    The phrase "Monetize Instagram" embodies ever fear I had when it was announced that Facebook purchased my beloved photo app. The only thing worse would be Instagram game invites.

  • Bettina Padurano

    hehe ... biggest part of Facebook's revenue is generated by advertisement posted next to members' photo albums.  now with Instagram... its a dream come true for Facebook.

  • Bettina Padurano

    Some people just put their pictures on facebook, pinterest, twitter and instagram. it makes me sick to see the same pic 100 times at 100 places?