Most online advertising is geared toward one objective: getting consumers to buy a product or sign up for a service right then and there. It’s this type of marketing, dubbed direct response, that has made ads tied to search results a cash cow for Google and helped Facebook quickly scale a $6 billion ad business. It’s the way the Web works.
Instagram, though, has a different plan. The photo-centric social media company isn’t trying to be the next Google, serving millions of dynamically chosen ads tailored to specific search results. It would rather be the next Vogue, commanding high ad rates for pretty sponsored posts that users may one day value as much as photos uploaded by their friends.
The company, whose path to profit has been speculated about since Facebook offered $1 billion for it in April 2012, made its intentions clear when it announced that it was introducing advertising to the service in October. “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 blog post at the time. “We want these ads to be enjoyable and creative in much the same way you see engaging, high-quality ads when you flip through your favorite magazine.”
In the last month brands such as Levi’s, Lexus, Michael Kors and Ben and Jerry’s have bought sponsored posts on Instagram. Unlike almost any other ads on the Internet, the posts don’t have outbound links to these companies’ websites. Instagram screens the ads for quality control. The images have more in common with the kind seen in print media than the ones that populate Facebook and Twitter.
“The real key is to do something that feels like it’s copmlementary to that space,” says Brian Bolain, the corporate marketing manager for Lexus . “We try to disrupt in other areas where it feels more important to stand out, but in social I think it’s really important that we fit in.”
It’s no surprise that Instagram is courting luxury brands like Lexus that spend lots of money on splashy commercials and print ads. Most of the world’s ad dollars remain tied to brand advertising, which aims to increase consumer awareness or affinity for a company instead of making an on-the-spot sale. Television remains the king of this type of marketing. 30-second commercials for next year’s Super Bowl have sold for $4 million, and TV comprised 58 percent of the total $160.7 billion global ad spend in the first half of 2013, according to Nielsen. Online display advertising (think banner ads) made up only 4.3 percent of this total, far behind TV, newspapers and magazines. But advertising in print media has been declining for years, while online ads are the fastest growing sector today.
Instagram’s ads, which take up most of the real estate of a cell phone screen, are much more prominent than banner ads that line the side of a web page or sponsored posts that crop up in Facebook’s News Feed. Like the ads in a magazine, they’re basically unavoidable. “If you can gain followers as a part of this, you are essentially gaining an invitation to the screens of those followers’ phones,” says Apu Gupta, the CEO of social analytics firm Curalate. “That’s a very powerful invitation. You’re explicitly inviting someone into your life.”
Right now the Instagram ads are going through the typical growing pains when a free platform tries to monetize itself. Many users greeted the first set of ads with angry comments, venting to both Instagram and the advertisers that they didn’t want to see the platform commercialized. But they also liked the posts in droves. Lexus, for instance, pulled in around 200,000 likes for each of its ads that reached between 5 and 7 million users, an engagement rate they say is higher than what they see on Twitter or Tumblr. A spokesman for Levi’s says the company saw a 20 percent jump in Instagram followers after running ads.
Of course, more abstract “likes” and followers won’t be enough to lure advertisers away from TV and magazines. Instagram is currently conducting surveys of users to measure how the ads affect brand awareness and recall, with plans to measure sales impact in the future.
The true test for Instagram ads will come when they try to scale it in a way that drives significant revenue. Facebook has become a social ad giant by offering a self-serve platform through which advertisers can easily create custom ad campaigns with little intervention from the company. Twitter works similarly. If Instagram adopts the same model, it will earn more money but its ads will likely annoy more users. There’s also a chance that Pinterest, another visually-based social platform that just started selling ads, will steal some of the luxury advertisers that Instagram is trying to attract.
“Instagram in particular is a community where the artistry of the imagery comes first,” says Gupta. “The question is can you preserve the creativity and artistry of these ads, or are they really going to go down the rathole of what happens when you only focus on direct response at all costs.”