Tuesday, December 18, 2012

Instagram needs to make money

It's no secret that Instagram has been moving closer to seriously exploring the ways to generate revenue.  Ever since Instagram has been acquired by Facebook just on its way to going IPO, Instagram went from a 2-year-old company without any revenue stream to publicly traded company over a weekend.  Undoubtedly Instagram must be getting lot of pressure within Facebook to justify its $1 billion price tag by creating potential return on investment.

So it is understandable to see Kevin Systrom putting out a very aggressive Terms of Use (TOU) revision to users.  The language in the TOU suggested that Instagram can not only feature ads that are not marked as ads, but also can sell the right to use user's photos to third party sites.  Now Instagram user community has protested to the new terms, Systrom wrote a blog post backing down on selling the user's photos.  But it still retained a right to feature ads without clearly marking them as ads.

A photo of Instagram's TOU with Instagram's Earlybird filter.
I don't think I have to worry about my privacy on that one.
Source: http://instagram.com/p/TaCdC9Pekm/

Here is a fact.  Instagram needs to figure out make money, and do it fast.

Instagram has three constituents to start generating revenue from: photographers, viewers, and advertisers.  All three need to be served and each offers what others are interested in consuming.

  1. Photographers (also known as smartphone users) want to share their photos.  
  2. Viewers want to see great photos.  
  3. Advertisers want the access to photographers and viewers.

With recent TOU revision, Instagram is experimenting with how to make money from photographer's content and advertiser's ads.  But Instagram is smart enough to realize that great content is where it all starts.  Instagram is not going to risk losing their content creators to Flickr, Pinterest, and Google+.

That leaves viewers and advertisers.  But it's hard to see viewers paying anything.  Instagram has been leaking publicly that they have reached 100 million users.  In order to keep the competitors at bay, Instagram has no choice but to remain free to play in this massive social networking site market.

All this means there is one way out.  They need to put together the most compelling ad package to advertisers.  Kevin Systrom must be thinking that in order to provide the most attractive ads the ads should be one of the great contents made from photographers.

"You acknowledge that we may not always identify paid services, sponsored content, or commercial communications as such."
- Instagram's new TOU effective as of Jan 16th 2013

Expect to see integrated ads coming in your Instagram stream.

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