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September 09, 2013

Instagram: A Billion-Dollar Acquisition That Has Never Made a Cent


Considering that Instagram has over 150 million daily users, you may imagine it as a large company. In truth, according to Evelyn M. Rusli of The Wall Street Journal, Instagram has just 50 employees and has never made a profit.

Emily White, former Facebook senior director of mobile partnerships, moved over to Instagram in March to serve as director of business operations. She started by helping CEO Kevin Systrom to identify Instagram's brand message, which is "to capture and share the world's moments."

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However, White's real mission is to figure out how to make Instagram profitable. This mission means that White has to come up with a way for Instagram to sell advertising without letting the ads interfere with its clean interface, slick photo patinas and easy sharing capabilities.

To start, Instagram may look at ways to create advertising with its Discover feature, which allows members to stumble upon popular content. Advertising may also be integrated with the search feature, which helps users search for themes and images within the app.

Some companies are using Instagram as an advertising platform. For example, Levi Strauss & Co. is sending a group of artists on a cross-country train ride. As the artists hit big cities, they will upload photos and videos to Instagram. While the partnership could be a blueprint for advertising going forward, Levi Strauss didn't pay Instagram any money to set up the technology.

Advertisers have expressed interest in embedding links in Instagram photos of their products so that users can tap the photos and go directly to the advertisers' sites. However, White has expressed concern about the hit-or-miss quality of many retailers' mobile websites.

Companies like Nike and Lululemon Athletica, Inc., are using Instagram for free viral campaigns. However, like Levi Strauss, they are paying nothing for the service. To monetize, experts suggest that Instagram should add value by creating an analytics platform to report on the effectiveness of its campaigns.

The company has a huge user base of teens and young adults to leverage. It just has to decide how to turn popularity into cash.




Edited by Alisen Downey


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