It's no secret that Instagram doesn't make any money. In fact, the photo-sharing social network has haemorrhaged millions of dollars since its inception in late 2010, remaining viable only through private investment. It makes the motive behind Facebook's acquisition of Instagram, for an eye-watering $1 billion, an intriguing one.
Has Facebook seen genuine potential to monetize Instagram in its current form or were they threatened by the competition? Perhaps it was simply to keep it out of Twitter's clutches, with whom a partnership would seem a more natural fit? With the financial backing of Facebook, Instagram isn't under immediate pressure to prove it can be independently viable. Internally, however, Facebook is accountable to stockholders who'll demand ROI. And with $1 billion invested, that's some return they're after. Here's how they could get there without alienating their notoriously clamourous users.
Introduce subscriptions
Plenty of applications offer a subscription-based platform whereby sign up and limited use is free with restrictions on storage. Users can then unlock more storage space and improved functionality by subscribing to certain price plans. This may be problematic given that many of the 100 million active Instagram users will already have accounts that use sufficient space to require a paid subscription. Can Facebook retrospectively charge users to access their photos without sparking mass walkouts? Perhaps such a barrier might make joining the service more appealing to the highly discerning Instagram user that's conscious of the broader quality of the service?
Incentivising the selling of users' data to third parties
A touchy subject. In 2012, Instagram rapidly backtracked as online uproar greeted its decision to change its privacy policy, essentially allowing the platform to sell users' photos to advertisers. But maybe there's a compromise to be had? If users were offered some kind of recompense for their photos, say, taking a monetary cut of the advertising premiums paid as well as attribution, then I'd expect significantly less opposition to the purported privacy changes. The option to opt-in option would almost certainly need to be implemented and Instagram would have to be completely transparent and candid about their process to prevent another social media storm.
Introduce trending images and/or hashtags in the explore section
The 'explore' section currently acts as the front page of Instagram, highlighting popular photos which consequently receive even more engagement. There's a great opportunity to introduce some 'Twitteresque', non-obtrusive advertising by charging advertisers to have specific images appear with more prominence. They could even look into introducing trending hashtags, for which Twitter successfully charges clients a rumoured $200,000 a day.
Charge brands to sell directly to consumers
At time of writing, Instagram does not include functionality to click on links displayed on image captions. With such an active user base and 59 of the world's top 100 brands on Instagram, there's massive potential for brands to sell to consumers directly through Instagram. Pinterest is a prime example of this system working and I'm sure brands would be happy to pay for the privilege if Instagram could prove it's a traffic driver and money-spinner.
While viable, these four options to monetize Instagram may not be as appealing to Facebook as their tried-and-trusted method of inserting ads into news streams. Their recent foray into video, to combat Vine, will certainly have been designed with newsfeed ads in mind. But will Instagram's audience stand for it? One school of thought suggests that Facebook will wait until they get video advertising right on their own social network before introducing anything to Instagram. But the fact remains: Instagram needs to start making money. The question is, how long can they afford to hold off? Watch this space.
How do you think Facebook will monetize Instagram? Ads or something a little more creative? I'd love to hear your ideas in the comments below.