Since its Facebook acquisition, Instagram has doubled its user base to about 200 million active users per month, with a third of those living outside the United States. To generate revenue Instagram has begun to slowly incorporate paid ads into its platform despite objections from many of its users. Instagram had already previously been forced to roll back an updated user policy when users complained about the fact that it would have allowed the company to use privately uploaded photos in advertising. Instagram realized that it needed to reach a delicate balance between user privacy, profit, and functionality. Although there is a huge potential to increase profits through ad revenue, showing too many ads poses the risk of losing customers and degrading the image and usability of the service.Instagram is one of many online tech companies that are prioritizing company growth over profits. Pinterest, Snapchat, and Tumblr are following a similar strategy as Instagram-focus on growing a larger user base and worry about profits later. Amazon.com (Links to an external site.)Links to an external site. has also maintained very low profits to continue to grow rapidly in its markets.
Facebook expects that Instagram's massive user base will translate into future revenue, but choosing the correct time to aggressively promote monetization of the services is critical. The highly personalized nature of social media, privacy expectations from users, and profit obligations to shareholders is a balance that Instagram needs to continually maintain. The company's current strategy is slanted toward platform growth, but this is likely to change as more ways to monetize the service are discovered.
Discussion Questions
1. Should Facebook continue following its strategy of using Instagram to amass a larger user base rather than working to make the service more profitable?
2. How can tech companies increase goodwill and indirectly affect profits for parent companies?
3. What is the best way to incorporate advertising into Instagram feeds while limiting the amount of resentment among current and future Instagram users?