In increasingly unsurprising news, Facebook was involved in further scandals last week. With their frequent power outages and the revelation that they had uploaded the emails of 1.5M users without their consent, all digital eyes are on Facebook once again. However, business on Instagram is booming — could it be becoming Facebook’s social media liferaft?
Facebook bought Instagram for $1 billion ($300 million in cash) back in 2012 and it’s only been growing since. Despite privacy issues, Facebook’s shares have also grown, increasing by 37% this year, and it may be due to the continuing growth of the photo sharing platform. Instagram will contribute $15.8 billion, or 23%, of fiscal 2019 ad sales to Facebook Inc., increasing to an estimated 27% in 2020. This makes Instagram more and more lucrative and it’s showing, with updates to the app coming in thick and fast…
An example of this is the launch of their shopping checkout, which could end up being a $10 billion dollar business. In March, Instagram’s shopping checkout was launched, allowing users to tap on shopping tags and buy the product without leaving the app from a checkout hosted on the Instagram app. This is a progression from the shopping features they launched before Christmas 2018 and the aim of this update was to make purchasing more convenient for the user, preventing them from having to go into a separate webpage or app to make the purchase after tapping on the product. Users will now be able to browse, pay for and track their purchases directly on the app, with a payment portal that supports PayPal, Visa, Mastercard, American Express and Discover. Instagram also plans to allow merchants to integrate their Shopify, BigCommerce, ChannelAdvisor, CommerceHub and other tools with the Checkout feature — making it even easier for marketers and organisations to track the impact of their social channels. After the first purchase, payment information will also be stored securely, to further the ease of future purchases.
But where does the profit come in for Facebook? Well, Instagram has said that 130 million of its monthly active users tap on the product tags that identify items that are for sale. With Instagram’s reported conversion rate of 3.1%, this could mean that a rough estimate of around 4 million people would want to take advantage of Instagram shopping on some level. The checkout is currently being tested by roughly two dozen brands (like: Nike, Kylie Cosmetics, MAC Cosmetics and H&M) before it is rolled out widely; brands that are widely known and bring in big revenue. This means that they could be bringing in big revenue specifically from Instagram users who are instantly buying their products on the app and Facebook Inc. will be profiting from the sales along with the company...
An Instagram spokesperson confirmed earlier in the month that they would be charging a ‘selling fee’ to brands selling their products through the app. However, the value of this fee hasn’t been disclosed as of yet. This could mean that they are looking to charge the seller a fee in exchange for higher purchase conversion rates as opposed to charging users a fee for the convenience of buying through the app. This is one way that money will be made from the checkout, another is Facebook’s old faithful, ad revenue.
Right now, checkout ads aren’t supported on Instagram and only organic posts are permitted to have the checkout button, but this could be a goldmine for the platform. Though there are already conversion focused campaign objectives available through the Facebook Ads Manager, by allowing sellers to promote content featuring the checkout button, or even running entire shopping campaigns aimed at those who are likely to buy in-app, potentially even targeting those with a history of buying in-app or aiming Instagram checkout only sales and offers to those on their mailing list, they could tempt advertisers with the prospect of higher ROI. With a projected 27% of their revenue coming from Instagram in 2020, ads like this could only be a smart choice for the platform — especially when, in the result of sales from the ads, they would also receive a selling fee.
Somehow, despite being a part of Facebook Inc. and privy on some level to Facebook’s recent scandals, Instagram has managed to fly under the radar, free of much scrutiny. Allowing it to flourish as Facebook appears to be suffering under its misdemeanours. Though it’s likely that things like Instagram’s checkout will be brought onto Facebook, once things have calmed down and the process has been refined, for the meantime, it appears that Instagram is becoming their innovative platform for now.
It’s been just over a year since we wrote the blog “Could Instagram be Facebook’s future?” and we’re still asking ourselves that question. In that blog, when Instagram had 800 million users, we wrote that Instagram was predicted to break the 1 billion user mark and that happened. Facebook’s user base, however, has declined by 15 million since 2017, this could be due to an ageing demographic but could it also be due to people becoming less-enamoured with the platform as a whole? Time will tell, but with Instagram’s non-stop rise, it’s still possible that it is being eyed by Facebook Inc. as a liferaft as their main vessel starts to sink.