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Will Ads Ruin Instagram?

September 9, 2013
URL: http://www.entrepreneur.com/article/228270

Ads will likely arrive on Instagram within the next year, as Facebook seeks to develop sources of revenue for the digital property it purchased in April 2012. But at this point it is anyone's guess how the photo-sharing service's users will react when ads do start showing up.

Instagram, created in 2010, has long been a playground for hip young people and the brands that market to them. So far, it has managed to retain its image despite a $1 billion sale to Facebook and incredible user growth, going from about 30 million users at the time of acquisition to more than 150 million today. In a blog post Sunday, Instagram said that it had added 50 million monthly users in the past six months alone.

The app has been expanding not only in sheer numbers but also geographically. More than 60 percent of Instagram users now live outside the U.S., the company said.

Going corporate
In its early days, Instagram's anti-corporate image attracted users "who didn't want to be associated with the giant on the block," says Brian Blau, research director in consumer technologies at Gartner. So will ads represent a tipping point in user sentiment? Maybe not. Blau points to a pattern with social networks and other free services in which, when ads are introduced, "people complain, there is a sort of backlash or revolt" at first, but ultimately the outcry diminishes and most users become habituated to the ads.

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But much will depend on how Instagram rolls out its ads, and on what kind they are. The team is considering ads in the Discover tab as well as the search function, according to The Wall Street Journal. And ads in users' photo feed, similar to those featured on Facebook's news feed and Tumblr's timeline, should not be ruled out.

Ads built around the Discover feature would be less obtrusive than ads in the photo feed, though marketers may be dissatisfied with the lack of front-and-center placement. But users who access the Discover tab are actively looking for new content, so that may be a natural place to fit ads, Blau says. Ads in the timeline would allow for a higher volume of ads, but they might clash with "the sort of social browsing that users are doing," he says.

Low volume, high growth
Wherever the ads are placed, Instagram may introduce them at a low volume so that its users have time to adjust to the new state of things. Indeed, Instagram's focus on tremendous growth may represent a hedge against the user flight that may occur once ads are introduced. A service with 150 million users can stand to lose a few here and there.

More than that, a huge and growing user base will allow Instagram to charge brands more for ads on its platform. That may mean Instagram will be able to hit revenue targets without drowning its users in display advertising. Emily White, Instagram's director of business operations, told The Wall Street Journal there is no immediate pressure to make money. Whereas Yahoo moved quickly to implement revenue strategies for Tumblr, at least some of which had been in the works prior to the acquisition, Facebook is playing a longer game with Instagram.

But Tumblr could be a role model for Instagram in at least one way. The microblogging platform's introduction of timeline ads "doesn't really seem to have hurt them," Blau says, though he adds that no analytics have been released yet to give a definitive picture.

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