Instagram’s careful advertising dance

Posted at 8:25 PM, Oct 07, 2013
By Heather Kelly


(CNN) — Beloved photo app Instagram turned 3 years old on Monday. In tech startup years, that’s the equivalent of becoming a teenager. Like most teens, it seems it’s time for Instagram to start pulling some of its own weight and earning money.

Last week, the company announced it will begin dropping ads into photo streams in the United States. The advertisements will roll out gradually sometime in the next two months.

Some people are upset about the commercialization of their favorite free Internet service. But either because it’s difficult to complain in the form of desaturated photos, or because the announcement has been expected for quite some time, the outrage is muted.

People have become used to free online services adding ads. The shock of Facebook, Twitter and Tumblr’s “selling-out” by adding advertising have trained people to expect some sort of business plan to pop up eventually.

If successful, ads could be quite a lucrative plan. Instagram could be pulling in more than $400 million annually from ads three to four years from now, according to Arvind Bhatia, an analyst at Sterne Agee.

Facebook purchased Instagram a year ago for around $700 million in stock. At the time, some critics said the cost was too high for a company not yet making money.

“In hindsight, the Instagram acquisition was brilliant,” said Bhatia. “In today’s market, if Instagram was still independent, they would have to pay much more for it.”

Instagram will have to tread lightly with its ads. The mobile-based photo-sharing service has seen explosive growth in recent years and now has 150 million people checking in at least monthly. Still, there are plenty of eager new social apps ready to pick up any dissatisfied customers.

“These companies have to really worry about the user experience. Once you lose the user base you won’t get any revenue from advertisers,” said Bhatia.

Instagram has experienced push-back from its audience before. Nine months ago, it updated its privacy policy and terms of service to include some new language that mentioned advertising. There was outrage and confusion over whether users’ photos could appear in ads without permission. The company had to dial back the language and issue a clarifying follow-up post.

Quality and volume of ads will be key to avoiding another uprising. Instagram is easing its audience into the new reality with some very lovely descriptions of what it will feel like to experience an ad on Instagram.

People will see a handful of “beautiful, high-quality photos and videos from a handful of brands that are already great members of the Instagram community,” the company said in a blog post announcing the ads. Though they haven’t been able to buy ads on Instagram, many brands, including Burberry, Nike and Starbucks, already use it extensively as a marketing tool.

The quality of Instagram ads will likely be higher than what fills Facebook. The clip-art awfulness of many Facebook ads makes them easy to spot and dismiss.

Ideally, Instagram ads will require advertisers to submit high-quality photos and videos that blend into the regular flow of sunset, baby, food and vacation photos in a stream. One out-of-place “One weird trick” weight-loss ad with cartoon art would be jarring.

“Our aim is to make any advertisements you see feel as natural to Instagram as the photos and videos many of you already enjoy from your favorite brands,” said the post.

You can already feel the warm glow of a gently served advertisement washing over you.

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