Instagram’s Real Ad Opportunity

Instagram caused a major hullabaloo yesterday with its new terms-of-service announcement. But the bigger story has less to do with users and more to do with Instagram trying to do what all other media companies do: create advertising opportunities.

In order for Instagram to succeed as a media business — and bring in brand dollars — the social photo network needs to accomplish several things. Interestingly, as we’re seeing, Instagram is keeping close to the Social Platform Playbook that has become standard operating procedure for platforms: scale, engagement, reach, proof. And it starts with the change of terms of service.

To understand Instagram’s plans, ignore the paranoid tweets from amateur photogs who are worried their lo-fi filtered baby shots will end up in Pampers ads. Look no further than parent Facebook. It succeeded by first concentrating on scale. Instagram, with around 100 million users, is on its way there. Next, Facebook convinced brands there was value in setting up shop on the platform. Here Instagram has some work to do, but it has top marketers like General Electric and Red Bull already on there and finding an audience. Now comes the hardest part: giving those brands on Instagram a distribution outlet to users that doesn’t upset them. And Instagram has to prove it works.

“What we’ve seen, fairly immediately following a change in terms of service, is the sketch of an outline of what the business model will be,” said Clay McDaniel, managing director at Spring Creek Group, a social media agency. “Then we see an Alpha program with a short list of big brands and media agency partners. There’s an implication, a clear understanding that this isn’t just about content; it’s the opening salvo in a larger strategic shift on Instagram’s part to be a profit generator.”

Where the Silicon Valley types and Instagram uprisers go wrong is on the distribution front. Facebook would be insane to think the easiest way to make money (and not upset users) would be to license their photos to brands. Talk to brands, and this isn’t what they want. What they do want is a way to get their content in front of more people in their target market. Take Hennessy. The spirits brand is very bullish on Instagram. It’s biggest problem: It can’t comment directly on user comments because it doesn’t know if those people are 21. Instagram needs to fix that. It also needs to give Hennessy a way to reach urban males over 21, a key target demo. (For more on Hennessy’s social media perspective, watch this video.)

“The table stakes are those things: promoted accounts (targeted); promoted engagement (your friend liked a photo from promotion); showing a brand photo of who you’re not following in your feed (an image from the brand even though you’re not following but you’ll see it),” said Ian Schafer, CEO of Deep Focus, who wants people to calm down over the TOS changes.

None of this is a surefire recipe for success. That depends on brands figuring out their role on the platform. And it’s still very early days for that. Facebook needs to devote more resources to hand-holding, and it’s hard to imagine it would rush headlong into a dubious ad scheme that’s sure to alienate users.

“One of the things we found is the more our clients understand what people do generally, what they enjoy sharing and how they enjoy interacting, the better (the clients) are at connecting in a way that feels natural, that doesn’t make the consumer feel like they’re being marketed to,” said Noah Mallin, vp of digital and social marketing at Digitas.

That’s why the TOS changes, which Instagram promises to address soon, are more likely just a bunch of legalese that covers every eventuality. Facebook is not about to squander its opportunity with Instagram on a harebrained scheme to “steal” people’s photos. Expect the coming Instagram clarification to make that clear.

“Just legally, they have to do these things,” Schafer said. “They’re not stupid. Facebook’s change of use, in 2009: We got over that one. If they didn’t have to say it the same way in 2012, they wouldn’t have. It’s a luxury they can borrow Facebook’s monetization strategy.”

And none of this should come as a surprise. Wall Street and analysts have beaten up on Facebook over two main points: not having a cogent mobile strategy and not having a revenue strategy. But that’s changing.

“By and large, they make money from sponsored stories and, in the long run, by monetizing the content and the metadata they have aggregated from its user base,” McDaniel said. “Facebook Exchange is one thrust of strategy, and Instagram is providing another lens of its user base: what images, content, sentiment and intent users share with each other outside of the news feed.”

Image via Shutterstock