So I was watching this brilliant interview
about mobile and the way that it is exploding, but still hard to monetize. This got me thinking about one of my favorite companies: Instagram. I say it's a company, but it's owned by Facebook which can be hard to remember sometimes. To start the story, let's remember that it's wildly successful, it has obtained 100 million users in a couple of years and the app gets massive engagement. People just love the product.
Considering that it's not a charity though and the main reason of starting a company is to make money, I thought I'd have a think about how they could justify its $1 billion valuation. Billions of photos uploaded every year is great, but it costs money to build the app and store all that data so how will the poster child of mobile apps actually make money? Many pundits have said it will struggle, but I've spotted one tiny little trick that could turn it into a massive cash cow.
The problem with making money on mobile is that you have less real estate to work with. The screen is tiny and studies show that the only ads people actually click on their phone are done so by mistake (The fat fingers theory).
Although people are massively engaged on their phone, classic models like display advertising or Adwords doesn't work as well as there just isn't enough room. This is going to be a huge problem for companies who are trying to monetize, but luckily there is a massive solution for Instagram that will mean it will end up coining it.
The Huge, Obvious Revenue Stream
As the New York Times reports today, there are hundreds of companies - ranging from small stores to the biggest brands on the planet - who are hacking ways together to try to sell more via Instagram. The one big problem is that you can't create links on Instagram.
No matter how nice the photo is, merchants have to place phone numbers under photos or even place text within photos in the hope that users will manually go to their site. Now imagine a brand like Nike below - a brand with close to a million followers - being able to link to individual products and special deals. It would provide the sort of sales and cold hard measurable ROI that advertisers are craving from social media.
The big problem that Instagram is trying to combat is spam, but charging brands and businesses to place a link under a photo is such an obvious revenue stream that makes sense for everybody. If done correctly, it won't annoy the users either and should actually enhance the overall experience by adding some context to images.
There are billions of dollars sitting on the table here and all Instagram has to do is add a couple of clickable links. If and when it does switch this on, it'll recoup the $1 billion Facebook paid, making it look like the bargain of the century.