Will Instagram’s Advertising Gold Rush Send Users Running?

With open API, quality could become an issue

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After nearly two years of allowing only a few dozen brands to run ads on the platform, Facebook-owned Instagram in August opened up to all marketers. At the same time, it partnered with eight third-party vendors to sell promos via its open application programming interface (API)—and business is already booming for those partners.

Five of the vendors—Brand Networks, Media Solutions, Ampush, SocialCode and Nanigans—said ad sales have significantly increased, in some cases doubling or tripling. It would seem to be a gold rush akin to the early days of Facebook advertising.

The partners aim to mimic the enormous success of Facebook API vendors of the past like Buddy Media and Vitrue, acquired for hundreds of millions of dollars by Salesforce and Oracle, respectively, in 2012.

Before Instagram rolled out its API, Brand Networks created content on the platform for its clients. Since the API, ads have bolstered revenue the vendor gets from the platform by 330 percent, due to what Jamie Tedford, CEO of Brand Networks, called "pent-up demand."

Tony Effik, managing director at R/GA, said that thanks to the API, "I think the ad spend is going to go through the roof."

Instagram hit 400 million monthly users this fall, surpassing the audience of Twitter. This as eMarketer predicted Instagram's ad revenue will reach $600 million this year and swell to $1.5 billion in 2016.

Still, there are concerns about a stampede of subpar creative, running counter to the high-def appeal of Instagram. In the past, the likes of Michael Kors, Ben & Jerry's and General Electric have created striking, magazine-quality ads for the app.

"We think about the medium of the newsfeed, and none of us wants to kill the golden goose—not advertisers and not the platforms," said Tedford.

A rush of marketing on the platform "does pose an issue with things like ad feeds and ad overload, particularly if you're not careful and you oversaturate the audience with a poor user experience," added Adam Shlachter, chief investment officer at DigitasLBi.

As Instagram ads recently became powered by the interest level of data collected by Facebook, the app's users have been targeted with a flurry of local and business-to-business ads—the kind they've experienced on Facebook for years—and that creative is not always top-notch.

"Our goal is for Instagram ads to be as relevant as the organic content people see, which is why feedback from our community is so important," said an Instagram rep.

Instagram has quality-control measures in place, and API partners said they have plenty of incentive—namely, revenue—to keep creativity at the center.

"As long as it's quality content relevant to users, we should be in a fairly good spot," said John Terrana, SocialCode's vp of media and operations.


Then, there's the sheer volume of ads. Before the API launch, Instagram ads for brands like Taco Bell and Capital One yielded strong brand recall, while those marketers saw clickthrough rates that outperformed Facebook. But consumers, it is feared, could react less favorably as more Instagram ads flood their smartphones.

Said Shlachter: "We certainly don't want to contribute to that pollution or play in a space that feels like there are messages that don't fit in."

This story first appeared in the Nov. 2 issue of Adweek magazine. Click here to subscribe.

@martyswant martin.swant@adweek.com Marty Swant is a former technology staff writer for Adweek.