Instagram’s $20 Billion Ad Revenue Isn’t Exactly a Shock to Marketers

Photo-sharing site is a big chunk of Facebook's business—even beating Google's YouTube

the instagram logo
Instagram account for a quarter of Facebook's business. Sources: Getty Images, Instagram
Headshot of Scott Nover

It’s hard to remember now, but for the first three years of its existence, Instagram was ad-free.

When it finally incorporated ads, shortly after Facebook bought the photo-sharing platform for $1 billion in 2012, the language around the rollout promised users it wouldn’t be too much, too soon: “We’ll focus on delivering a small number 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 2013 blog post announcing the change.

But now it’s 2020, and my Instagram feed is littered with shoe companies I’ve never heard of while Squarespace and LinkedIn nestle their promoted Stories between those from my friends and family. Instagram’s ad-less era is but a fleeting memory.

Since first monetizing Instagram more than six years ago, Facebook has not regularly released specific revenue figures in earnings reports (Facebook went public just one month after acquiring Instagram). But the photo-sharing app has become a sizable portion of Facebook’s total revenue, according to a new Bloomberg report that says Instagram alone accounted for $20 billion in ad revenue in 2019. While Facebook won’t confirm that number, $20 billion makes up a quarter of the social network’s total revenue—a sizable piece of the pie.

This news isn’t exactly a shock for those who help brands advertise on social media.

Bridget Jewell is the social creative director at Minneapolis-based agency Periscope, which represents brands like Target, Trolli and Truvia. If anything, Jewell is surprised Instagram doesn’t make up a larger portion of Facebook’s revenue.

“We’ve seen the shift of the major target audiences that our clients are going after spending more time on Instagram than they are Facebook, and it feels like the ad revenue shift would have happened more quickly or more than it already has,” Jewell said.

Any stagnation in the platforms’ growth could be attributable to their limited slate of ad formats—mainly in-feed and Story-based offerings, she noted.

Jess Richards, global head of social at Havas Media, which works with clients including Disney, Emirates and Michelin, said that over the last 12 months, most of the brands she works with have advertised more and more on Instagram. “The user growth on Instagram globally, as well as time spent in-feed and with Stories, is a quick indicator as to why advertising revenue is increasingly coming from Instagram,” Richards said. “They’ve made all targeting capabilities consistent across their network of apps, with the ability to easily optimize ad formats within the feed and stories across all platforms.” 

Additionally, they both cited the commerce function of Instagram as a major factor in its growth. “Part of the popularity of Instagram is that it’s the online shopping marketplace of discovery,” Jewell said. “If you’re online shopping—just browsing, like you would be in a mall—you’re most likely doing that on Instagram. Pinterest used to be a part of that, and they still are to an extent, but it’s just not the same as it is on Instagram.”

Instagram’s Checkout feature, which gives users the ability to make purchases within the app—a function introduced last March—has helped direct-to-consumer brands “start to get recognized on a larger scale where they might not have been able to be.”

Asher Chester, director of performance marketing at Agency Within, which represents Nike and Hugo Boss among others, says that Checkout is still “in its infancy” and once Instagram adds more features and more users become comfortable making purchases through the platform, that’s when Instagram could really see a revenue bump. “I think the biggest opportunity for Instagram to continue expanding their revenue contribution is really unlocking Instagram Checkout and making that mainstream as well as finding ways to incentivize even more influencers to get involved on the platform,” Chester said. “If they are able to figure that out, I think you’ll only see that percentage increase.”

It’s possible that Instagram has become a cluttered space for advertisers too. “I do think that we’ve seen overall [cost per thousand views] go up and viewability go down on Instagram over the past even just six months because of the increase of people putting more ad dollars into Instagram,” Jewell said. “So it’s becoming a more competitive marketplace.” She’s seen increased ad dollars to TikTok from brands that are less risk-averse (both in trying a nascent platform and one riddled with regulatory concerns).

Tuesday’s revelations about Instagram’s ad revenue came conspicuously close to YouTube’s own first-of-its-kind revenue disclosure on Monday. Like Facebook and Instagram, Google has always been tight-lipped about subsidiary YouTube’s performance relative to the whole of its business.

But earlier this week, Google broke with that tradition, reporting that YouTube brought in $15.1 billion in ad sales. While multiple spokespeople for Facebook declined to comment on the $20 billion figure or other questions about Instagram’s role within the company, it appears that Instagram has a significant edge over YouTube. 

Jewell thinks that while YouTube is a web traffic behemoth, video production can be a more daunting task for small businesses and direct-to-consumer brands relative to Instagram, where a still image might still do the trick. Chester agreed, saying that while there’s a lot of opportunity for creative, long-form content on YouTube, Instagram can be a “lighter lift” for advertisers. That, they concur, might be what’s giving Instagram the edge.

While Facebook has more than 2.5 billion monthly active users—and Instagram was last reported to have about 1 billion in June 2018—many brands seek the younger audiences that congregate on Instagram. But Chester noted that not everyone is comfortable with mobile purchases yet. “You still have a lot of dollars being spent on Facebook because a lot of those ads have desktop inventory available, so you’re going to see a lot more performance come from that because people are still more prone to making desktop purchases over mobile purchases,” he said.

Once Instagram realizes its ecommerce potential, perhaps then Instagram will play an even bigger role in Facebook’s overall business—if those numbers are ever disclosed, that is.

@ScottNover Scott Nover is a platforms reporter at Adweek, covering social media companies and their influence.