Why Instagram Ads Could be Huge for Facebook’s Mobile Empire

$100 million quarterly out of the gate, industry players say

It's still unclear when Instagram ads will become widely available to marketers. Facebook doesn't appear to be in a hurry to make purchasing and placing Instagram promos an automated experience, instead maintaining that its so-called white glove service to a few dozen Fortune 500 brands will remain the status quo.

Sources close to the situation say the number of advertisers is steadily increasing. So whether the spigot truly opens in six, 12 or 18 months, marketers believe such a move is inevitable and predict it will prompt a cash windfall for CEO Mark Zuckberg & Co. In fact, maybe Facebook should actually be in a hurry to capitalize on the current mobile ads explosion since it acquired Instagram two years ago for the princely sum of $1 billion.

"It's very easy for Facebook to sneeze and create a $100-million-per-quarter-revenue business with the scale of Instagram and their salesforce," said Corey Weiner, HyprMX CEO.

The signs—particularly from the earnings news cycle of the last week—are everywhere that Instagram's social-mobile ads would be purchased by brands of all sizes. For instance, Facebook's second-quarter mobile ad sales were 34 percent greater than Q4 2013, and it will likely draw a whopping $6 billion from the marketing category this year. Twitter's Q2 statement revealed that it's on pace to achieve more than $800 million in mobile ad revenue in 2014. And according to a Digi-Capital report, mobile dollars will jump more than 300 percent while hitting $700 billion by 2017.

Instagram, which has more than 200 million users and began working with advertisers in pilot mode eight months ago, appears unusually well-positioned to make a huge splash into this pool of digital dinero—much bigger thanks in part to the $40 million deal it inked with Omnicom in March. After all, the likes of Taco Bell and Hollister have already declared that their static promos on the smartphone app are performing well. When 15-second video ads become part of the mix, look out. And there have been recent rumblings that Instagram is developing an app-install ad product.

"It's not far-fetched to think that with app download ads in their portfolio, Instagram ads could exceed $100 million per quarter in sales immediately after [a wide-scale rollout]," said Marc Poirier, a cofounder and vp at Acquisio.

Weiner of HyprMX pointed to Facebook Marketing Solutions—the tech giant's advertising nerve center—which is being leveraged in the name of Instagram's ad business. And a Digiday report about Facebook testing the ability to retarget consumers who had seen Instagram ads with Facebook promos does little to discourage the notion that sophisticated iterations are afoot. Like Poirier, Weiner contends that the platform will essentially rival Twitter—which saw mobile sales total $165 million in 2013 Q3 before growing to $224 million last quarter—right out of the gate. 

"However, it won’t grow into Facebook's next billion-dollar business unless Facebook can convince advertisers to buy the units on a cost-per-thousand [CPM] basis," Weiner said. "The key to Instagram’s monetization efforts is if Facebook can really scale a video business on a CPM basis."

Industry researcher eMarketer doesn't have an ad revenue estimate for Instagram yet. But eMarketer rep Dan Marcec said that the "long-term potential is significant, given its tie to Facebook, the visual nature of the platform, and high engagement of its users, particularly on mobile, where Facebook has proven quite successful over the past year."

Dinesh Boaz, managing director and co-founder of Direct Agents, added, "At this stage, Instagram's ad value is in its exclusivity and a hyper-engaged audience that is still excited to engage with new content—a stark difference with audiences of Facebook and Twitter who are already beginning to develop a numbness due to the sheer volume of ads in posts."

Boaz is of a similar mind to Instagram CEO Kevin Systrom, who evidently inspects brand campaigns before letting them go live—a routine that suggests the marketing platform may remain invite-only for a while. But industry watchers assert that the financial benefits of selling at larger scale will eventually outweigh aesthetic concerns.

"They are hoping to sell Instagram to marketers [with a product] that is close to that September Vogue print magazine immersive experience," said Rebecca Lieb, Altimeter analyst. "But quality control is difficult in the long term. You cannot maintain creative control over advertisers forever. You can maintain standards, but you cannot continually say, 'Well, this isn't beautiful enough for us.'"

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