Sponsored Filters? How Facebook Could Monetize Instagram

Marketers hope $1B acquisition means better Facebook mobile ad products

At least Facebook knows that it had better tread carefully with Instagram fans. In announcing its $1 billion acquisition today, CEO Mark Zuckerberg made a point of saying that Facebook was committed to developing Instagram independently.

"We believe these are different experiences that complement each other," Zuckerberg wrote on his Timeline. "But in order to do this well, we need to be mindful about keeping and building on Instagram's strengths and features rather than just trying to integrate everything into Facebook."

That, of course, didn't stop plenty of Instagram users from flocking to Twitter to gripe about the deal and, in many cases, threaten to quit. But it still gave tech pundits and consumers a reason to believe that Facebook isn't going to shut down the popular photo-sharing site and, even better, recognizes that it needs to respect the community and culture that's sprouted around it.

The megadeal is widely recognized as a defensive move by Facebook to protect its turf in the growing mobile social space. And, with it, the social giant acquires an audience of 27 million mobile users who actively share their locations, passions and friends.

But even though Facebook says it will manage Instagram as a separate service, the soon-to-be-public company will obviously be under pressure to use its deep pockets and engineering might to help monetize it. The question is how?

Last September, Instagram CEO Kevin Systrom hinted at possible revenue models at the Mobilize conference in San Francisco. Without going into detail, he outlined two possibilities: a freemium option in which the company charges for premium features and an advertising program capitalizing on the photo-sharing accounts already run by some big brands.

“Instagram is one of the few services where people subscribe to brands like Burberry,” the tech blog GigaOM quoted him as saying, and that holds significant potential.

For Red Bull, for example, which has managed an Instagram account since it launched two years ago, the photo-sharing service has become an effective medium for engaging with consumers, the company said.

"Image interaction rates on Instagram have increased over time and user growth has skyrocketed," Kevin Doohan, director of digital marketing, Red Bull Media House North America, told Adweek in an email. "The Red Bull account has grown into a meaningful channel for connecting with our fans."

About a dozen brands, including Logitech, are already integrating their Instagram accounts with their Facebook pages through a product released by social media marketing company Vitrue last month. The so-called "tab module" allows brands to import their stream of Instagram pictures directly into their photo-friendly Facebook Timelines.

"We've been seeing this interest in the proliferation of the social graph and social marketing space beyond just Facebook for a while," said Vitrue CEO Reggie Bradford. "Certainly, we think Facebook is the hub and spoke of any marketer's social marketing experience and infrastructure. But we're seeing increased desire from marketers—and consumers, frankly—to manage across more components of the social graph."

As Facebook develops Instagram, he expects the company to give marketers ways to leverage their Facebook audience on the photo-sharing service, as well as tools for measuring analytics and publishing in the app.

Beyond that, the Instagram acquisition gives Facebook a valuable new set of mobile and interest data that it can use to better target advertising across its platform.

Sal Candela, mobile director for PHD Network, said he didn't think marketers were particularly impressed with Facebook's advertising opportunity in mobile, so they hope the deal leads to better ad products.

“Acquiring Instagram will give Facebook an opportunity to learn how users are sharing photos across various social networks," he said, "which can ultimately inform Facebook on how to evolve their network with the conversion of mobile, social and location.”

Facebook will likely hold off on monetizing Instagram for a while. But when it does, some caution that it shouldn't deviate too far from its acquisition day pledge.

"I would hope they live up to their promise," said Dave Marsey, svp and media practice lead for Digitas. "Let Instagram remain separate and use the vast resources from Facebook on the tech and engineering side to continue to grow the Instagram platform and audience, [but] not monetize the Instagram stream if you will."

So, no Sponsored Filters, for example?

"The marketer side of me may like that," said Marsey, "but the consumer side of me does not."