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Instagram is already running out of room for ads, and that’s a threat to Facebook as it looks for new avenues to keep revenue growing

Instagram is already running out of room for ads, and that’s a threat to Facebook as it looks for new avenues to keep revenue growing

Instagram is already running out of room for ads, and that's a threat to Facebook as it looks for new avenues to keep revenue growing

Made in NYC Stock quotes by finanzen.net Instagram is already running out of room for ads, and that’s a threat to Facebook as it looks for new avenues to keep revenue growing Feb. 18, 2019, 7:21 AM Facebook CEO Mark Zuckerberg Facebook A few years ago, Instagram was red-hot for advertisers, with its 500 million-strong young audience. But like the Facebook feed, the Instagram feed is coming close to reaching its saturation point for ads, even though it runs two-thirds fewer ads than Facebook does. As the feed gets more crowded and expensive, Facebook is trying to shift advertisers towards its Stories ads on Instagram, Facebook and Messenger. Advertisers have been slow to shift, though, because the Stories ads require their own creative and don’t reach as many people as feed ads do. In 2016, Instagram’s ad business was booming and Facebook was reaping the rewards of its $1 billion acquisition of the mobile app four years earlier. Advertising was still new to Instagram, but the app, with its 500 million young users, represented a significant amount of shiny, new inventory to advertisers, particularly as they shifted spend from desktop to mobile. As Instagram copied features from rival Snapchat — including its now popular Stories feature where users post ephemeral, vertical content — marketers pumped spending into Facebook’s sibling app that was seen as critical to Facebook’s growth. Now Facebook has started warning investors that the company’s hockey-stick growth may be waning as both the Instagram and Facebook feeds reach a saturation point with ads. “When we look into 2019, we do expect to see a deceleration of revenue growth throughout the year,” said David Wehner, Facebook’s chief financial officer, during the company’s fourth-quarter earnings call. “While we have opportunities to grow impressions on Facebook and Instagram, that’s less so in feed, where we already have healthy ad loads.” Read more: Facebook has a plan to solve advertisers’ lingering measurement concerns — but Google is already a step ahead To be clear, Facebook is a money-printing machine. It grew ad revenue 37% year-over-year to $56 billion and added one million advertisers in 2018. But growing demand from Facebook’s seven million advertisers has made it more expensive to advertise in the feeds. According to data from Marin Software that tracked Facebook ad spend during the fourth-quarter, Instagram feed ads cost more than both Facebook’s feed and Stories ads. The data suggests that Instagram ad prices are going up. Per Marin Software, the average cost-per-click for Instagram feed ads was 85 cents, versus 53 cents for Instagram Stories ads and 18 cents for Facebook feed ads. That’s led Facebook to try to diversify its revenue sources by betting big on Stories . Two million of its seven million advertisers have run Stories ads. But advertisers have been slow to make the switch to Stories because they’re challenged to make the vertical-oriented creative required of Stories. The Stories audience isn’t as big as the feeds’, and they say Stories ads don’t perform as well as feed ads. In an average campaign where advertisers spend $100,000 on Facebook, $95,000 still goes to feed ads with the remaining $5,000 going to Stories, Rosenblatt Securities analyst Mark Zgutowicz said. “Initially I’ve seen ads where they’re using the same creative that they were using in feed. That doesn’t work and it really needs to be customized,” said Meghan Myszkowski, VP of social activation at Essence North America. “Facebook ads in feed are the mainstay. They are always a very strong performer when you find the right target and the right creative.” Associated Press Instagram isn’t the full-blown ad juggernaut of Facebook The Instagram feed is reaching its saturation point even though it’s only sold ads earnestly for four years compared to Facebook’s 12 years. That’s because as Facebook has turned on its ad spigot in recent years, it’s been cautious about flooding Instagram with ads. During a 10-minute scroll through a feed, users see two to three ads on Instagram compared to up to 10 ads on Facebook, according to Zgutowicz. “They wanted to keep Instagram as pure as possible,” he said. “It has a different user base that is generally speaking younger and less tolerant for ads, whereas the more mature adults on [Facebook’s] feed have grown up with ads.” Facebook doesn’t break out Instagram’s ad revenue, but Zgutowicz estimated that Instagram makes up about 15 percent of Facebook’s revenue, roughly even with 2017 when Instagram represented about 14% of Facebook’s mobile revenue, according to estimates from research firm eMarketer. Zgutowicz said he doesn’t expect the percentage to grow meaningfully over the next few years. “Until we get to pricing double where we are today in Stories ads, it doesn’t press the needle much in Instagram’s ad revenue contribution,” he said. Juliette Leavey, associate director of digital strategy at Deutsch, said that the many security and data concerns facing Facebook over the past year will lead it to pull back ad inventory in Instagram this year. “Instagram has less inventory because they’re trying to protect their platform,” she said. “We’re seeing in 2019 that they’re going to be very protective.” The lines between the apps is blurring Over time, it may matter less if advertisers get crowded out of Instagram. The distinctions between the apps is blurring for advertisers as they increasingly rely on Facebook’s own technology that gives Facebook control over where ads appear. Facebook has been testing an “automatic placements” tool where brands upload their ads and Facebook determines the best place and time to run them. The tool can also convert creative into Stories and determine if it’s better to run an ad in the Facebook or Instagram feeds. Agencies say that the tool makes their Facebook buys more efficient, so they’re less concerned about the audience differences between Facebook and Instagram. “In a lot of cases, we’re not necessarily buying one platform specifically over the other — we’re buying against an audience or performance KPI,” said iCrossing’s chief media officer Jeff Ratner. “It makes it one inventory pool as opposed to a couple of different inventory pools.” To that point, advertisers are increasingly trying to tie together all of Facebook’s apps in their ad buys, and Stories is the company’s first ad product to run across Facebook, Instagram, and Messenger. Facebook has also said it plans to roll out similar ads in WhatsApp later this year. “When you approach Facebook now, it’s not just thinking of feed, it’s the entire Facebook ecosystem,” said Essence North America’s Myszkowski. “You kind of have to look at it as the full package.”

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