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Advertising on Instagram could hit $700M in three years

Sterne Agree analyst projects photo-sharing app could mint money from ads alone

Financial trends and news by Steven Loeb
December 13, 2012 | Comments
Short URL: http://vator.tv/n/2c58

I know that this will disappoint a lot of you out there who want your apps and websites to remain “pure,” but Instagram is going to start monetizing, and probably very soon. This news should not come as a surprise to anyone; the whole reason that Instagram took its photos off of Twitter recently was to make more money by having more users visit its recently created website.

Look, the service has 100 million users, at least according to Mark Zuckerberg. You don’t have that many people using a product without getting those users to pay up. It’s really that simple.

There are numerous ways that Facebook could make money off of Instagram, but let's say that the unthinkable happens, and it does start putting up ads on Instagram. How much money could actually be made?

Up to $700 million in just a few years, according to a report from Sterne Agee analyst Arvind Bhatia released Thursday.

In the report, Bhatia stated that Instagram has the potential to generate $500-$700 million in advertising revenue in the next three years. Within three years, he said, Instragram could be making $250 to $300 million annually.

That is obviously not a small amount of money, and that is only what is projected from advertising, and not any other form of revenue.

Advertising on Instagram

How exactly Facebook plans to make money off Instagram remains to be seen. Carolyn Everson, Vice President of global marketing solutions at Facebook was a little cagey when she had this exchange with Business Insider Wednesday:

“Business Insider: Will you put ads in Instagram? 

Carolyn Everson: Eventually we'll figure out a way to monetize Instagram. 

Business Insider: How far are you away from figuring that out?

Carolyn Everson: Well, Instagram continues to grow incredibly fast and we're still a very small team when you think about the amount of people they are reaching. There are many brands that use Instagram right now to try to get a feel for how to engage with their followers. We will definitely be figuring out a monetization strategy. When that will happen, I can't comment, but it's going to happen.”

Notice how Everson never said that there would be advertisements on Facebook. Of course monetization does not necessarily mean advertising, nor do I suspect it will be the only way Facebook tries to make money off of its billion-dollar acquisition. But advertising is clearly an option, and one that Facebook will likely pursue, especially given how much they could potentially take in. 

Other potential sources of revenue

The potential $700 million that Bhatia projects is only from advertising, and not from any other potential sources of revenue. So what else could be done on top of, or instead of, putting ads on Instagram?

It could team up with the large number of brands on the site, and offer them a premium service that would allow them to promote special deals and discounts.

Instagram could also try something that Bhatia mentioned, which is to add a Shutterfly like-service that would sell digital photography products and services to users.

Yet another potential source of revenue could be from monetizing photographs.

While Stipple recently announced an integration with Twitter, Instagram has taken the opposite step by having its photos completely removed from the social network. 

Stipple CEO Rey Flemings, in speaking to me Thursday in regards to the money that his company had raised, told me that Instagram would not have to had to do this if they had a service like Stipple, which would have allowed them to monetize their photos.

While most of the photos on Instagram are taken by the average person, and don't have much potential to be monetized, there are plenty of brands on the service too, with people following, liking and commenting on their photos. 

If Instagram does take the step toward making money by tagging its photos, it could be a another huge source of revenue for the photo sharing company. 

There are a number of ways to monetize Instagram that would probably be less intrusive than having ads pop up all over the place. And, even if $700 million figure is true, it's well unclear whether Instagram would want to clutter its service with them.

(Image source: http://www.troll.me)


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