Could Instagram Innovate Native Advertising?
Instagram, the mobile photo-sharing service which was bought by Facebook in 2012, has announced plans to expand advertising to the U.K., Canada and Australia later this year, after having launched ads to its U.S. audience in November 2013. Instagram has over 200 million users worldwide, enabling them to take photos and then use various photo-editing tools before sharing those photos across multiple social networks that accept the mobile service.
Instagram's efforts to boost its ad offerings comes at a time of increasing competition from social media companies like Twitter and Pinterest that share a vision for how native advertising can improve the state of mobile app monetization for marketers, app developers and users.
What makes Instagram's native-style ads valuable is the fact that they flow through a news stream where users see photos one at a time as they scroll through, thus allowing for more exposure. At the same time, this approach is also disrupting the user experience.
That's why Instagram has set the bar high for creative ads, pushing prospective advertisers to produce high-quality, almost print-worthy images that fit the aesthetic of the mobile service. Instagram ads will target people who don't follow a specific brand. The ads will be differentiated with the word "sponsored" at the top of the image. Users will be able to hide them by tapping a symbol at the bottom of the photo, which will help filter ads in the future.
However innovative it may seem, some have questioned the pricing model Instagram is offering to advertisers. Reportedly, the ads could sell for monthly fees well into six figures depending on the reach and frequency sought. The pricing model could push advertisers to start narrowing their target audience and thus minimizing their reach. More critically, by getting the target audience wrong, advertisers and Instagram may risk intruding into the privacy of those that don't want to be reached, possibly risking actual use of the mobile service. So, a question remains: How innovative can Instagram be with its native-style ads, and should it involve users in the innovation process?
User-led innovation is a hot trend nowadays and capitalizes on the "intelligence" of the crowd, while at the same time accommodating the evolving interests of different users. While companies like Threadless, InnoCentive, iStockphoto and Flickr, among others, may be considered pioneers in user-led innovation, more and more companies are acknowledging the power of the crowd in their product and service delivery strategies. Instagram has a great advantage over all of these: it's financed by the biggest social network and, thus, could potentially tap on the intelligence of a bigger crowd of users.
Instagram could revolutionize the delivery of native-style ads — and potentially the pricing models for such ads — by providing customized offerings based on what people talk about, do and share on Facebook. There are two dimensions to this strategy. First, users should be allowed to actively participate in the way such ad offerings are designed and delivered. At the moment the focus is on delivery alone. By allowing users to participate in the design, Instagram will be opening up the doors of creativity, while accommodating users’ needs and interests. This has been one of the big success factors in other user-led innovation models.
Second, this user activity should be added as an additional metric to the target, reach and frequency optimization models that Instagram adopts to construct its pricing models while offering a more dynamic picture to advertisers as to how those models are built. Once again, this would help justify the pricing models while contributing to the success of the marketing campaign.
Certainly Instagram (and Facebook) will need to tread carefully with such a strategy given recent concerns over the use of ads in social networks as well as broader privacy concerns. However, through some initial iterations with key identified users and advertisers, Instagram would be in a better position to start developing a strong strategy.
Panos Constantinides is an associate professor of information systems at the Warwick Business School.