How Does Instagram Make Money in 2022? Instagram Business Model

There are only a few businesses in the world that need no introduction because it is highly popular in every corner of the world! 

If you are reading this article, then I’m pretty sure you are a regular user of Instagram and use it to grow your business.

Instagram is a great place to share the precious moments of your life in the form of photos and videos. A platform to follow your favorite celebrities, follow your friends, and ofcourse to build your personal brand and grow your business!

Key Instagram Statistics

This photo-sharing app has come a long way since its inception and has grown immensely over the overs. If your brand isn’t on Instagram then it’s a worrisome matter because these Instagram stats will blow your mind.

• According to Backlinko, Instagram has 500+ Million active daily users worldwide as of 2022
• Young people love using Instagram App, as 71% of people who use it are under the age of 35.
• Around 42% of the Instagram users open the app multiple times a day
• According to a survey conducted by Facebook, 81% of users use the platform to research about products and services.

Instagram Business Model

Instagram’s business model is based on the advertising revenue model. This business model is nothing but where you give an opportunity for other businesses to advertise on your platform.

This will help other businesses to reach their target customers, build brand awareness and positioning, and ultimately to make more sales in the long run. 

Did You Know?

Facebook generates 99% of its revenue from Ads!

Instagram had made $20 Billion in ad revenue in 2019 and you might wonder how does Instagram even make so much money. 

Okay then, let’s try to understand how Instagram makes money by analyzing their various types of Ads.

How Does Instagram Make Money?

There are various Ad format opportunities provided by Instagram for their advertisers so that Instagram gets more options to generate revenue from Advertising. There are several ways through which Instagram makes money from advertisements.

Instagram launched Ads to run on its platform in 2013 and since then their advertising revenue has only increased exponentially.

With that, let’s check out Instagram’s advertising options 

Story Ads

Story ads are introduced in 2016 and as of now in 2022, 500 Million users utilize stories every day. 

Story ads can be a photo ad or a 15sec video ad. Both of these ads can include a call to action buttons so that the users can click on it to know more about their business. If you have ever seen story ads it just looks like an organic post.

Check the below story ads examples:

Video Ads

The sponsored video ads are introduced by Instagram in 2013.

The experience your target audience can have with video ads are way better than photo ads. The Instagram video ads can be as long as 120 seconds.

But as a matter of fact, shorter video ads that are 26 seconds long drive the highest engagement. 

Many businesses run video ads on Instagram every single day which helps Instagram to generate a lot of revenue.

Photo Ads

Photo ads will show up when you keep scrolling on the home feed of your Instagram. You can see that those photos will be tagged with a sponsored tag. So many businesses every single day run photo ads on Instagram and Instagram makes a lot of money though this.

Below image will get you an idea of how it will look:

Carousel Ads

Instagram introduced carousel ads in 2015.

Instagram carousel ads are just like slide shows which are being showcased one after the other. You can show up to 10 photos/videos on carousel ads.

You can run carousel ads both on the feed section as well on stories. Carousel ads can be highly effective considering you get the opportunity to display your entire business activities within a single Ad!

IGTV ads

Instagram introduced IGTV (Instagram Television) in 2018 but it’s only after 2 years in 2020, with a lot of testing they introduced IGTV ads. 

IGTV ads will help the advertisers to run the video ads for up to 15 seconds long and it will also help the video creators to make money from IGTV ads!

These ads will be shown in the beginning whenever a user clicks on the IGTV video. IGTV ads are only available for select countries as of now and will be rolled out to other countries during this year i.e 2021.

Reel ads

Ads might be the only source of revenue for Instagram but you see Instagram has capitalized on every feature they offer to run ads on it.

Instagram has recently introduced (June 2021) reel ads to its platform. These ads will appear while skipping reels. Reel ads will be similar to the reel content which will be played in a loop for 30 seconds.

Reel ads are available for advertisers all around the world. People spend a lot of time watching Instagram reel and businesses are trying to grab this opportunity by running ads which benefits Instagram in making money.

Explore Ads

Explore ads is also one more way through which Instagram tries to make money. You can even find sponsored ads on Instagram’s explore or search tab. The posts on explore tab are shown based on the users’ interaction with different pages and posts.

Instagram Explore can be a great place for advertisers to invest their money because as per Instagram 50% of Instagram users make use of Instagram explore every month!

So as of now, these are the few ways through which Instagram is making money from Ads.

Read: Best Business Instagram Accounts

How Instagram started? Instagram success story

Instagram was launched in 2010 by two folks from Stanford University, Kevin Systrom, and Mike Krieger.

Kevin wanted to work for himself and be his own boss and work on his own ideas. 

Kevin was a big fan of playing video games and the idea of how video games are being made caught on in his mind and that’s when he started loving more about programming.

During his study at Stanford, he was approached by Mark Zuckerburg to work with him alongside. But Kevin politely turned down the offer by Mark.

Kevin later worked at a company called ODEO (which was a podcasting platform back then) which later became Twitter.

Later Kevin met Mike who also had similar thoughts like Kevin where they discussed creating an App.

Kevin loved drinking bourbon so much that he wanted to create an app for Bourbon. And that’s why they launched Burbn app.

The main aim of this app was to check-in for bourbon drinking locations and share those good bourbon photos on the app.

Later luckily Kevin got an investor for his Burbn app who invested a huge amount of $50K and that’s when the burbn app got a little bit of traction from other big investors as well.

With a few investors funding money to them, they raised a total of $500K in a very short period of time.

Even though the Burbn app received so much funding, it couldn’t quite able to capture the market as the Burbn app had only about 100+ users. And it seemed like users quite didn’t like the product.

Kevin and Mike both came to a realization that Burbn wasn’t going anywhere and they had something about it.

As a normal person, you would think about marketing and more research on how to get more users using the Burbn app. But Kevin and Mike had other plans.

They went to those 100 odd customers and took a survey of why these people are even using Burbn. And that’s when they came to know that users loved Burbn’s photo-sharing feature rather than its check-in feature.

That’s when the change began to completely transform the app into a photo-sharing app which now we know as Instagram!

They both started working for about 8 weeks on building the app and within just one month of its launch, Instagram had 1Million users!

It took only 3 years for Instagram to sell their company for $1 Billion! I hope you already know who bought it for such as huge amount. Well, it’s none other than social media giant Facebook’s CEO Mark Zuckerberg.

That was indeed a great move by Mark Zuckerberg because now Instagram is worth $100Billion which is 100x more than their initial investment!

Why Facebook Bought Instagram?

Well, you might have already guessed why Facebook bought Instagram. yes, you are right it is to get the competitor off the race. 

This is very common and usual in business. Whenever a business feels like they are being troubled by a competitor the first question they’ll ask themselves is can we buy this company?

When you know you cannot compete with them then just buy them and that’s what major companies do! And that’s exactly what Facebook did.

Instagram SWOT Analysis

Let’s check out Instagram’s Strength, Weakness, Opportunities, and Threats

Strength

• Instagram is backed by Facebook which ensures good financial support
• 1 Billion users of Instagram is its biggest strength
• There is no major competitor for Instagram
• High engagement rate and reach

Weakness

• One of the weaknesses of Instagram is that many users have reported security concerns and facebook had security breaches in recent times.
• Also unlike Facebook in Instagram posts, you cannot give links to direct your visitors to your business site.

Opportunities

• Instagram had recently announced IGTV videos of creators can be monetized which will only help Instagram to make more money and grow their audience.
• It is predicted that by 2025 there will be 4.41 Billion social media users worldwide. This gives Instagram a great potential to grow its user base rapidly in the coming years and beyond, so more opportunities!
• Lots of businesses make use of Instagram ads so more is the opportunity for Instagram to make more money.
• Stepping into Instagram shopping has given Instagram one more big opportunity to make money out of it

Threats

• As of now, there aren’t any big threats for Instagram as there are no major competitors of Instagram. But you see how clubhouse which was launched in 2020 was able to grab the attention of millions!
• So you never know, if any company is smart enough to bring in innovative ideas then there might be a definite chance of competition.

Lessons to Learn From The Success of Instagram

Pivot and Make Changes 

Pivoting is nothing but making changes to your products or services which isn’t taking off.

When Kevin realized that his burbn product wasn’t working he was very quick in pivoting the initial product idea which made all the difference in how the business progressed later on!

Listen to Your Current Customers

This part is crucial. When you already know that your product isn’t scaling up, ask your current customers who are actively using your product and have an open-minded discussion with them.

This one move will give you a lot of insights into various aspects.

Find Untapped Niche

Being successful in a business is about implementing something that nobody has done before. Kevin and Mike realized there was no app that provided the convenience of sharing photos online.

And this untapped niche motivated them to work hard on their product and to make the most out of it.

Don’t Make a Product Because You Love It

As Kevin loved drinking bourbon he wanted to make an app for it which didn’t work out as we already know. No matter how many times one can say it will always be “finding what your customer needs” which will define your business success.

You Need a Bit of Luck Too

What you think luck won’t play a part in business success? In fact, it does. Sometimes it’s about being at the right place, at the right time, and meeting the right people. 

Kevin was so lucky to meet steve Anderson at a bar who got interested in their product and invested $50K and this investment by Steve attracted many other investors as well and the investment kept on rolling.

So you see, luck does matter! What say?

The trend for the search term Instagram has only gone up since its inception and tell you what it will be there for a lifetime. It’s not going down!

Key Takeaways

One thing we can take away from Instagram is sometimes it’s about changing the initial idea which didn’t work out and not sticking to the original idea. It’s about analyzing the data that you have gathered and then taking the necessary action accordingly.

Remember, changing (Pivot) the initial idea can sometimes do wonders!

We hope you came to know how Instagram makes money and learned a valuable lesson from the success of Instagram!