EMarketer Instagram Advertising-What Marketers Need to Know

INSTAGRAM ADVERTISINGWhat Marketers Need to Know

JULY 2015

Debra Aho Williamson

Contributors: Danielle Drolet, Jeremy Kressman, Maria Minsker, Corey McNair, Martn Utreras, Haixia Wang

Read this on eMarketer for iPad

INSTAGRAM ADVERTISING: WHAT MARKETERS NEED TO KNOW 2015 EMARKETER INC. ALL RIGHTS RESERVED 2

CONTENTS2 Instagram Advertising: What Marketers Need to Know

3 New Ad Products Will Lead to Rapid Revenue Gains

5 What Marketers Need to Know About Users

10 Making the Most of Instagram Ads

16 eMarketer Interviews

17 Related eMarketer Reports

17 Related Links

17 Editorial and Production Contributors

INSTAGRAM ADVERTISING: WHAT MARKETERS NEED TO KNOW

Instagram will soon carry a lot more advertising. Direct-response buttons, an API for ad buying and Facebook-style

targeting capabilities will give advertisers new ways to buy and will lead to rapid increases in ad spending on the

photo-focused social network. eMarketer forecasts Instagram will have $595 million in ad revenue this year, rising to

$2.81 billion in 2017.

Advertisers will be eager to try Instagrams new features, and as a result, the social networks ad revenue will increase rapidly, approaching $1.5 billion in 2016 and $3 billion in 2017. Instagram will account for 3.7% of parent company Facebooks ad revenue this year.

In 2017, Instagram will have higher US net mobile display ad revenues than Google or Twitter.

Instagram advertisers will be able to use a full slate of Facebook targeting tools, including the popular Custom Audiences feature. That will be a key drawing card.

Instagram will set a high bar for direct-response ads, which will have a premium look. Ad load will remain low, which will likely increase prices. This combination will effectively shut out many performance advertisers seeking a low cost per click (CPC).

Users have shown high engagement with the branding ads that have appeared on Instagram thus far, but that could change as new types of advertisers enter. Appropriate use of targeting and creative will be necessary.

Instagram will launch ecommerce capabilities with the shop now and install now buttons, but the kinds of advertisers that will benefit most from them will be those with unusual, limited-quantity or eye-catching products. App installs may fare betteras long as the ads meet Instagrams creative bar.

WHATS IN THIS REPORT? This report features eMarketers first forecast for Instagram revenue, as well as an analysis of what marketers should know about Instagrams user base and its new ad products, including best practices for getting the most out of them.

billions and % of Facebook total ad revenues

Instagram Net Mobile Ad Revenues Worldwide,2015-2017

2015

$0.60

3.7%

2016

$1.48

7.1%

2017

$2.81

10.6%

Instagram net mobile ad revenues% of Facebook total ad revenues

Note: paid advertising only; excludes spending by marketers that goestoward developing or maintaining an Instagram presenceSource: eMarketer, July 2015193464 www.eMarketer.com

KEY STAT: After a successful test of brand advertising, Instagram will be open to any advertiser by years end. Pent-up demand for ads on the social network will help drive Instagrams revenue to near $600 million this year and $2.81 billion in 2017. [Note: The 2015 revenue figure in this chart has been rounded up from $595 million.]


NEW AD PRODUCTS WILL LEAD TO RAPID REVENUE GAINS

Instagrams ad business will ramp up rapidly this

year, expanding beyond branding to include

direct-response ad units, the ability to buy ads

via an API, and enhanced measurement and

targeting features.

Those features will roll out over the next several months, and by the end of 2015 Instagram will have a full slate of ad products for advertisers large and small.

Weve spent the last 18 months establishing the platform for large brands. The next logical step is to empower businesses of all sizes to be able to achieve their objectives, said Jim Squires, Instagrams director of market operations.

Many companies will be eager to test the social networks new features. Instagram advertising was previously a rare commodity, reserved for McDonalds, LOral, Mercedes-Benz and other brands that were willing to spend a flat rate of $200,000 to conduct a campaign. Instagram offered those advertisers a limited assortment of image ads, 15-second video ads, and the newest feature, carousel ads, which can display more than one image.

Now that Instagram is opening up to more advertisers, its likely to find a lot of pent-up demand.

Instagram is probably [our] favorite platform right now in terms of pioneering and being willing to try new things, said Roderick Strother, director of worldwide digital and social at Lenovo, whose Australian arm recently conducted its first Instagram ad campaign. The importance of Instagram has grown tremendously for us.

Instagram has what a lot of marketers see as the most compelling package: audience plus strong engagement plus strong brand awareness, said Victor Pineiro, vice president of social media at digital agency Big Spaceship.

EMARKETERS INSTAGRAM AD REVENUE FORECAST Based on expected demand, eMarketer predicts Instagram will garner $595 million in ad revenue this year and more than $2.8 billion in 2017.

Instagrams ad revenue is currently all from mobile. It will make up 5% of Facebooks worldwide mobile ad revenue this year and 14% of that total in 2017, eMarketer forecasts. In the US, Instagram will account for 10.7% of Facebooks mobile ad revenue in 2015 and 28% in 2017.

Instagram Net Mobile Ad Revenue Share of FacebookMobile Ad Revenues Worldwide, US vs. Non-US,2015-2017

% of US Facebook net mobile ad revenues

% of non-US Facebook net mobile ad revenues

% of Facebook net mobile ad revenues worldwide

2015

10.7%

0.5%

5.0%

2016

20.1%

1.3%

9.5%

2017

28.0%

3.7%

14.0%


As the percentages above imply, international revenue is limited. eMarketer predicts just 5% of Instagrams total mobile ad revenue will come from outside the US this year. The US will account for the vast majority of revenue throughout the three-year forecast period, even as international revenue swells to 15% of the total in 2017.

billions, % change and % of total

Instagram Net Mobile Ad Revenues Worldwide, US vs.Non-US, 2015-2017

2015 2016 2017

US $0.57 $1.37 $2.39

% change - 142% 75%

% of total 95% 92% 85%

Non-US $0.03 $0.12 $0.42

% change - 299% 255%

% of total 5% 8% 15%

Worldwide $0.60 $1.48 $2.81

% change - 149% 90%


In a sign of just how quickly Instagram is expected to grow in the US, eMarketer forecasts that it will have higher net mobile display ad revenue than Google or Twitter in 2017.


billions

Instagram, Google and Twitter Net US Mobile DisplayAd Revenues, 2015-2017

2015

$1.47

$1.19

$0.57

2016

$1.89$1.72

$1.37

2017

$2.38$2.29

$2.39

Google Twitter Instagram

Note: net ad revenues after companies pay traffic acquisition costs (TAC) topartner sites; includes display (banners and other, rich media and video); adspending on tablets is included; excludes SMS, MMS and P2Pmessaging-based advertisingSource: company reports; eMarketer, July 2015193350 www.eMarketer.com

Several investment banks and financial entities have issued their own forecasts for Instagram revenue, and there is general consensus that Instagrams worldwide ad revenue will top $1 billion in 2016 and $2 billion in 2017.

millions

Comparative Estimates: Instagram Ad RevenuesWorldwide, 2015-2017

2015 2016 2017

Cowen and Company, July 2015 $689 $1,407 $2,223

eMarketer, July 2015 $595 $1,484 $2,813

Raymond James, June 2015 $500 $1,100 $2,000

JMP Securities, June 2015 $445 $1,409 -

Trefis, May 2015 $411 $971 $2,160

Canaccord Genuity, June 2015 - $1,200 -

Source: eMarketer, July 2015; various, as noted, 2015193479 www.eMarketer.com

THE DEMAND IS THERE Surveys indicate that marketers are ready to advertise on Instagram. February 2015 polling of US marketers by RBC Capital Markets and Advertising Age found that 72% were at least somewhat interested in advertising there, ahead of Pinterest, LinkedIn and others. [Note: Facebook, Twitter and YouTube werent included in the survey question.]

% of respondents

Social Media Sites* Where US Marketers Would BeInterested in Allocating Their Ad Budget, Feb 2015

Instagram 72%

Pinterest 46%

LinkedIn 41%

Google+ 28%

Tumblr 26%

reddit 14%

StumbleUpon7%

Other6%

Note: n=306; "somewhat interested"; *excluding Facebook, Twitter andYouTubeSource: RBC Capital Markets and Advertising Age, "Social Media Survey,"March 12, 2015186987 www.eMarketer.com

Another investment bank survey, conducted in December 2014 by Cowen and Company, found that 30% of US senior ad buyers queried who hadnt already advertised on Instagram planned to allocate ad spending there this year, ahead of Snapchat and Pinterest.

That dovetailed with a May 2015 finding by Strata that 34% of US ad agency professionals it surveyed said Instagram was the social media site they were most likely to use for client campaigns, ahead of LinkedIn, Google+, Pinterest and Snapchat, among others.

There is also demand outside of the US, where Instagram advertising is available in only seven markets: Australia, Brazil, Canada, France, Germany, Japan and the UK.

In Europe, Instagram is both more interesting and arguably has more potential than Facebook does, said Marshall Manson, managing director for EAME at Social@Ogilvy, a unit of Ogilvy & Mather. Despite the fact that Instagrams user base is much smaller than Facebooks and that paid advertising is available in a limited number of markets, marketers are looking at this going, wow, this could be really amazing, he said.

With Instagrams doors open to advertising, there will soon be a lot more marketers on Instagram, both organically as well as in paid advertising. As of now, the percentage of marketers using Instagram organically trails behind other platforms. But any company that wants to buy ads on Instagram will need to have an Instagram account, Instagram representatives said.


Salesforce Marketing Cloud found in a November 2014 study that 34% of marketers it polled worldwide were using Instagramthe same percentage that used blogs, but well behind the response rate for use of Facebook, Twitter, LinkedIn, Google+ and YouTube.

% of respondents

Leading Social Media Channels Used by MarketersWorldwide, Nov 2014

Facebook 80%

Twitter 70%

LinkedIn 62%

Google+ 56%

YouTube 56%

Blogging 34%

Instagram 34%

Pinterest 24%

Note: currently usingSource: Salesforce Marketing Cloud, "2015 State of Marketing," Jan 13,2015184497 www.eMarketer.com

Among the fast-growing, privately owned US companies on Inc. Magazines annual Inc. 500 list, Instagram use reached 25% in 2014, up from 18% in 2013, according to the University of Massachusetts Dartmouth Center for Marketing Research.

The expected momentum in marketer usage and advertising demand will make Instagram a strong contender for ad dollars in the coming years. The next two sections of this report explore what marketers should know about Instagrams users and the platforms new advertising products.

WHAT MARKETERS NEED TO KNOW ABOUT USERS

Instagram is a fast-growing property. Its user base

skews young, and it has become a home for people

to explore their passions and interests, as well as to

connect with friends, both ones theyve met in real

life and ones they havent.

Key things to know about Instagram usage include:

The number of US users is substantial and growing.

International growth is less strong; other social apps will be challengers.

Instagram is not Facebook; people use it differently, and for different reasons.

Brand engagement has been high, but whether that continues isnt definite.

US USER BASE IS SUBSTANTIAL AND GROWING Instagrams monthly US user base increased nearly 60% in 2014, to 64.2 million, eMarketer calculates. By 2019, over one-third of the US population is expected to use Instagram, amounting to 111.6 million people.

millions, % change and % of populationUS Instagram Users and Penetration, 2013-2019

2013

40.2

93.6%

12.7%

2014

64.2

59.9%

20.1%

2015

77.6

20.9%

24.2%

2016

89.4

15.1%

27.6%

2017

98.9

10.6%

30.3%

2018

106.2

7.4%

32.3%

2019

111.6

5.0%

33.6%

Instagram users % change % of population

Note: internet users who access their Instagram account via any device atleast once per monthSource: eMarketer, Feb 2015184685 www.eMarketer.com


Propelled by a nearly 60% gain in users, Instagram surpassed Twitter to become the second-largest social network in the US in 2014. By comparison, Twitters US user base grew just 12.1% in 2014, eMarketer estimates.

millions, % change and % of population

US Social Network Users and Penetration, by Site,2013-2019

Facebook

% change

% of population

Instagram

% change

% of population

Twitter

% change

% of population

Pinterest

% change

% of population

Tumblr

% change

% of population

Total

2013

147.5

4.2%

46.6%

40.2

93.6%

12.7%

43.2

19.4%

13.6%

34.9

34.5%

11.0%

13.7

46.2%

4.3%

165.7

2014

152.4

3.4%

47.8%

64.2

59.9%

20.1%

48.4

12.1%

15.2%

42.3

21.2%

13.3%

17.7

29.2%

5.6%

173.6

2015

157.1

3.0%

48.9%

77.6

20.9%

24.2%

53.1

9.6%

16.5%

47.1

11.4%

14.6%

20.0

12.9%

6.2%

180.3

2016

161.4

2.8%

49.8%

89.4

15.1%

27.6%

57.6

8.6%

17.8%

50.7

7.7%

15.7%

22.2

11.0%

6.9%

186.0

2017

165.7

2.6%

50.7%

98.9

10.6%

30.3%

62.0

7.6%

19.0%

53.9

6.3%

16.5%

23.8

7.2%

7.3%

191.2

2018

169.2

2.1%

51.4%

106.2

7.4%

32.3%

66.1

6.6%

20.1%

56.8

5.4%

17.3%

25.4

6.5%

7.7%

195.9

2019

172.0

1.7%

51.8%

111.6

5.0%

33.6%

69.1

4.6%

20.8%

59.3

4.2%

17.9%

26.6

4.8%

8.0%

200.1

Note: internet users who access their Facebook, Twitter, Pinterest,Instagram and/or Tumblr accounts via any device at least once per month;social networking audiences are not mutually exclusive; there is overlapbetween groupsSource: eMarketer, Feb 2015; confirmed and republished, July 2015184672 www.eMarketer.com

Teens in particular are heavily represented on Instagram. In 2013, 67% of US smartphone users ages 12 to 17 used the service at least monthly, eMarketer calculates. This year, 89.6% of that cohort will do so. Among US smartphone users ages 18 to 24, 57.5% will use Instagram this year, up from 39.0% two years ago.

% of smartphone users in each groupUS Instagram User Penetration, by Age, 2013-2019

2013 2014 2015 2016 2017 2018 2019

0-11 15.1% 20.7% 19.9% 20.1% 20.7% 21.4% 22.3%

12-17 67.0% 87.4% 89.6% 90.9% 90.7% 91.1% 91.7%

18-24 39.0% 53.1% 57.5% 61.4% 64.9% 68.2% 71.1%

25-34 37.1% 48.1% 53.1% 57.5% 61.1% 63.3% 65.2%

35-44 17.1% 27.8% 32.0% 34.6% 37.1% 39.6% 40.2%

45-54 15.1% 21.4% 25.2% 27.5% 29.6% 30.9% 32.3%

55-64 13.2% 19.2% 22.0% 24.7% 26.5% 28.3% 28.8%

65+ 6.1% 9.1% 10.5% 12.0% 12.3% 12.5% 12.4%

Total 27.4% 37.6% 40.7% 43.1% 45.0% 46.4% 47.1%

Note: internet users who access their Instagram account via any device atleast once per monthSource: eMarketer, Feb 2015184753 www.eMarketer.com

Despite Instagrams growth, its usage remains far below that of its parent, Facebookat least among adults. In comScore MobiLens May 2015 ranking of top apps, it placed ninth, with 36.6% of US smartphone app users ages 18 and older using it. Facebook had nearly double that reach (70.2%), and several Google services as well as Facebooks own Messenger ranked higher in comScores list.

INTERNATIONAL GROWTH ISNT A GIVEN Worldwide, Instagram has 300 million monthly active users, according to its own tally, with more than 70% coming from outside the US. eMarketer has yet to publish a forecast for worldwide Instagram usage, but its worth noting some key differences in our forecasting methodology compared to Instagrams.

eMarketer estimates the number of individuals who use a property monthly. We exclude business accounts and multiple accounts by individual users, and discount for potential fake accounts and bots. That explains why eMarketers US user estimate is 77.6 million users this year, while Instagrams figures imply a US user base of 90 million (and a non-US user base of 210 million).

Instagram is definitely growing, and its international user base is substantial, but it is less popular around the world than other social platforms. For instance, a February 2015 study by Reuters Institute for the Study of Journalism at the University of Oxford found that 14% of internet users in 12 countries examined used Instagram, compared to 65% using Facebook, 57% on YouTube, 27% using WhatsApp (another Facebook property) and 21% on Twitter.

Although eMarketer considers Instagram to be a social network rather than a messaging service, the fact that it is predominantly a mobile app puts it in close competition with those services.

According to GlobalWebIndex, Instagrams worldwide user base grew more slowly than that of Pinterest or Tumblr in the period from Q2 2014 through Q1 2015. Instagrams active user tally rose 46%, compared to 97% for Pinterest and 94% for Tumblr.


% change vs. Q2 2014

Leading Social Media Sites/Apps Worldwide, Rankedby Growth in Active Users, Q1 2015

Pinterest97%

Tumblr94%

Instagram46%

LinkedIn39%

YouTube13%

Twitter8%

Google+7%

Facebook-8%

Note: ages 16-64; used in the past month via any device; excludes ChinaSource: GlobalWebIndex, "Social Summary Q1 2015," May 5, 2015189709 www.eMarketer.com

Instagram faces a lot of competition outside the US, especially as mobile messaging apps such as Snapchat, Line and Facebooks own WhatsApp and Messenger gain strength.

A November 2014 survey conducted by the Office of Communications (Ofcom) UK found that 16% of UK social media users had an Instagram profile, behind Facebook, Twitter, WhatsApp and YouTube.

% of respondents

Social Media Sites on Which UK Social Media UsersHave a Profile, Nov 2014

Facebook97%

Facebook only48%

Twitter26%

WhatsApp24%

YouTube17%

Instagram16%

LinkedIn14%

Google+12%

Snapchat9%

Pinterest5%

Flickr4%

Myspace4%

Note: n=1,093 ages 16+Source: Office of Communications (Ofcom) - UK, "Adults' Media Use andAttitudes Report 2015," May 11, 2015190004 www.eMarketer.com

In Brazil, Instagram was the No. 3 app used by smartphone owners, according to April 2015 research from Opinion Box. With 36% smartphone user penetration, it fell a significant distance behind WhatsApp (86%) and Facebooks flagship app (76%) but ahead of Facebook Messenger (30%).

In Asia-Pacific, Instagram faces even more competition. Only 6% of internet users in South Korea reported using it in a March 2015 survey by Waggener Edstrom Asia-Pacific and YouGov, compared to 34% using local service KakaoTalk and 29% using Facebook. Likewise, in Japan, 13.5% of smartphone users were using Instagram as of December 2014, according to Mobile Marketing Data Lab. That was well behind the 59.6% using local service Line, the 52% on Facebook and the 39.3% on Twitter.

The good news for Facebook is that its umbrella strategy of owning several social media platforms appears to be working. But Instagram on its own will not be a worldwide powerhouse on the level of Facebook.


INSTAGRAM IS NOT FACEBOOK According to comScore data cited by RBC in a June 2015 report, more than 96% of US Instagram users over the past 12 months were also Facebook users. That extremely high figure runs counter to the common perception that Instagram users dont tend to use Facebook, or at least dont use it that often. However, given that comScore defines usage broadly (i.e., a visit to Facebook or Instagram at least once in a given month), the overlap is probably reasonable.

Another study, by Cowen and Company, backs this up. It found that 92% of the US Instagram users it surveyed in June 2015 were also Facebook users.

Despite the overlap, marketers should not assume people use Instagram the same way they use Facebook.

From everything we look at, from our own behaviors to how we do a content strategy across different platforms, the strategy for Instagram is very different from Facebook, said Kelly Meyers, senior creative strategist at agency Code and Theory. The content thats OK on Instagram is very different for Facebook, and people behave very differently on the two platforms.

Instagrams Squires identified several areas where Instagram differs from its parent:

Community: Theres this very distinct sense of community [on Instagram] that just continues to get stronger and stronger as the years have gone by, he said.

Visuals: Its photos and video, versus other platforms where there is text content and a variety of other formats.

Creativity: The creative tools, like the filters and the image tools that are available, have driven people to do much more interesting, aesthetically pleasing things inside the environment.

Discovery: People are looking for inspiration and discovery. And in many cases the entities or people that they follow are not people that theyve met in the real world. These are passion points for them.

Demographically speaking, not only is Instagrams user base younger than Facebooks, it also trends toward higher incomes, at least among US teens.

Teens from high-income families were the most likely of any income group to use Instagram, with 56% of teens from the highest household income bracket using it5 percentage points higher than any other income groupaccording to March 2015 polling by GfK for Pew Research Center.

% of respondents in each group

Demographic Profile of US Teen Instagram Users,March 2015

Gender

Female 61%

Male 44%

Age

13-14 44%

15-17 58%

Race/ethnicity

Black 64%

Hispanic 52%

White 50%

Household income


BRAND ENGAGEMENT IS HIGHFOR NOW Marketers interest in Instagram has been fueled by studies showing high engagement with both organic marketing and paid ads. But it is not certain that this will continue when more marketers and their ads enter the system.

On the organic side, one factor that has led to high brand engagement is that Instagram users have the potential to see every post from accounts they follow (provided they log in regularly). This automatically leads to higher engagement. In contrast, Facebooks algorithm reduces the likelihood of people seeing brands organic posts.

For example, home furnishings retailer Dot & Bo sees similar numbers of likes on its organic posts on Instagram and on Facebook, even though it has only 8,800 followers on Instagram vs. 620,000 on Facebook, said Allyson Campa, the companys vice president of marketing. Similarly, a Mini USA spokesperson told eMarketer in June 2015 that more than 20% of the automakers followers on Instagram typically see posts from the brand, far better performance than it sees on Facebook.

In a Q2 2015 study by L2 Think Tank, US fashion brands saw an engagement rate of 0.63% on Instagram, well ahead of the 0.09% on Facebook and 0.02% on Twitter. The definition of engagement rate varied across the platforms, however, with likes and comments counted on Instagram; shares, likes and comments included on Facebook; and favorites and retweets (but not replies) on Twitter.

Social Media Metrics for US Fashion Brands, by Site,Q2 2015

Brand adoption

% change vs. same period of prior year

"Likes"/followers/subscribers (thousands)


Engagement rate*


Views** (millions)


Post frequency (averageposts per week)


Facebook

99%

-

2,170

18%

0.09%

6%

-

-

7.4

-3%

Instagram

96%

11%

1,014

160%

0.63%

-18%

-

-

10.4

36%

Twitter

94%

-

880

40%

0.02%

-9%

-

-

21.9

16%

YouTube

87%

-3%

25

63%

-

-

13.0

44%

0.7

-6%

Note: among 79 fashion brands examined by L2 Think Tank; *includes comments, "likes" and shares for Facebook, "likes" and comments for Instagram, favorites and retweets for Twitter; **includes effect of video removal from brand channelsSource: L2 Think Tank, "Insights Report: Fashion: Social Media," May 21,2015191330 www.eMarketer.com

Shareablee, a social analytics company, found that consumer actions (such as favorites and comments) for brand pages on Instagram more than doubled in the first quarter of 2015 compared to the previous year. By comparison, actions increased 32% on Twitter and 27% on Facebook.

% change vs. Q1 2014

Growth in Engagement* of Posts on Facebook,Instagram and Twitter Among US Brand Pages, Q1 2015

Instagram 108%

Twitter 32%

Facebook 27%

Note: represents activity on pages tracked by Shareablee, broader industrymetrics may vary; *includes comments, favorites, "likes," retweets andsharesSource: Shareablee as cited by Advertising Age, June 22, 2015192671 www.eMarketer.com

Organic engagement on a given Instagram post is leaps and bounds above its counterpart on Facebook, on Twitter, on Pinterest, on any of them, said Pineiro of Big Spaceship. The reasons youll get numbers that are so high is that you see every piece of content that youre subscribed to, and its really easy to tap once to like something.


In addition to showing strong organic engagement, ad engagement has also proven high, at least according to several case studies published by Instagram. In a June 2015 blog post, Instagram cited several examples of advertisers in Canada achieving brand lift of 14 to 45 points.

If you think about ad recall on the platform, its nearly three times what you would see across the industry, generally speaking, Instagrams Squires said.

Whether those sorts of metrics stay high will depend on how the company handles the ad rollout and on how marketers craft their pitches. Thus far, Instagrams slow and careful approach has cultivated a positive experience for both brands and users. The introduction of a lot more advertising, especially ads that seem out of place in the Instagram environment, could irritate users and lead to usage declines.

MAKING THE MOST OF INSTAGRAM ADS

After a slow and carefully managed beta test,

Instagram will soon open its doors to more

advertising. But marketers should not expect those

doors to be wide open.

Yes, Instagram will accept direct-response advertising, and it will let advertisers use a self-serve platform or work with an API partner to place ads. But the company wont be letting just any advertiser in.

Instagram has been very careful about opening up the doors to advertising, and theyve been very discriminating, and rightfully so, to protect the integrity of the space, said Janet Keller, the advertising, digital, social media and CRM manager for General Motors GMC division, one of the early brands to test advertising on the platform.

And while Instagram wont individually vet and approve ads as it did during the beta test, its algorithm will be trained to ensure a really high-quality experience for individuals, said Squires. Signals such as negative feedback rates, ad engagement rates and comments on those ads are fed back into the system. All of our models will get trained to deliver the most relevant, most interesting types of creative.

Among the key issues that marketers will face as they launch or expand their advertising on Instagram will be:

How to insert a direct-response pitch into what was previously only a branding environment

How to maintain the high bar of creativity that users and brands have come to expect

How deeply to incorporate Facebook targeting into Instagram

How to measure results and compare Instagram against other platforms

When and how to incorporate a shop now button

What follows is an in-depth look at these challenges.


THIS ISNT TYPICAL DIRECT-RESPONSE ADVERTISING Instagram is promoting a more muted approach to direct response, one that takes into account cues from users before initiating a pitch.

Advertisers will be able to add four types of buttons to their Instagram ads: learn more, install now, sign up and shop now. Each button will open up a browser that takes the user to a page on the advertisers website, or to a location within one of the mobile app stores. Users will be able to return to Instagram by tapping a back button or X, depending on their device.

The ability to leave Instagram and then easily return is new; previously, the only way a brand could direct users to its website was by referring them to its profile page, where users could then click a hyperlink.

As part of the expansion into direct response, Instagram is also changing the way advertisers buy ads. Currently, they must buy directly from Instagram on a fixed-price basis with guaranteed delivery.

By early autumn, advertisers will be able to use the same methods and pricing structures as on Facebook. They will be able to work with a wide range of API partners, including 4C, Ampush, Brand Networks, Kenshoo, Laundry Service, MediaVest, Nanigans, Olapic, Resolution Media, Salesforce.com, SocialCode, SocialMoov and Unified Social. They can also buy through Facebook tools such as Power Editor. Fixed-price ads will still be available.

Youll have all the different bid models and pricing models that are available on the Facebook side also available to you on the Instagram side, Squires said.

For those considering direct-response advertising on the platform, here are some points to keep in mind:

IMAGE MATTERS: [Instagrams] a very unforgiving environment if youre going in there with an image that looks stale or spammy, said Kevin Lange, senior vice president of social media at Starcom MediaVest. Theres going to be some tried-and-true tactics, especially on the direct-response side, that arent guaranteed to work.

INVENTORY MAY BE CONSTRAINED, LEADING TO HIGHER BID PRICES: In interviews, executives expressed concern that Instagram will keep its ad inventory so limited that the only direct-response advertisers that will win auctions will be those with deep enough pockets to place higher bids. Instagram declined to comment on ad load, but keeping prices high would rule out many of the internets more typical direct marketers.

THINK SUBTLE: Instagrams buttons are small, and the actions they encourage are very specific. They are designed to support only a few types of engagement.

Advertisers might be wise to take cues from how Instagram has incorporated the existing learn more button into its carousel ad format. There, the button does not appear on the first image, only on succeeding images. The user must show a certain level of engagement in order to even see the button.

They obviously dont want it to be a treasure trove of gaming ads where people are just going to install Candy Crush all the time, said Chris Jacob, director of product marketing for Social.com and Active Audiences at Salesforce.com.

EVEN WITH SUBTLE PITCHES, USERS MAY STILL REBEL: The reason some Instagram users started using the service in the first place was to avoid the ad clutter of places like Facebook. They may not react positively to new types of ads on Instagram.

Instagram is a completely closed system, said Pineiro of Big Spaceship. Many users report that they love Instagram because theyre not being marketed to. I feel that the core Instagram users, those heavy users, are going to be quite put off by the idea that theyre going to start being led to other places.

TARGETING WILL BE IMPORTANT: There wont be much love for loud or aggressive direct-response pitches. If, on Instagram, youre offering some value and its well targeted, its relevant and it adds to the conversation, then I think people are likely to react well to it, said Strother of Lenovo.


CREATIVITY WILL STILL BE VALUEDAND REWARDED Instagram and its advertisers to date have worked hard to ensure that their pitches meet a high bar of creativity. Some have likened them to the glossy print ads in a high-end travel or fashion magazine.

Setting a high bar was quite intentional, and several executives interviewed by eMarketer reported that they received extensive help from Instagram when crafting their brand campaigns.

For example, GMC worked closely with Instagram for an ad that used the carousel format. We collaborated with them directly and said, Hey, how can you help us, knowing what you know with the community, and knowing what you know in terms of what works with this community? said Keller.

Instagram helped come up with the ads unique format, which turned three carousel images into one panorama-type image, Keller said.

Now, Instagram will move away from that sort of heavy involvement. An algorithm will take over those duties, and relevancy and creativity will be two key factors.

Executives identified several best practices for eMarketer. These apply to both brand ads and direct response.

PRACTICE FOR PAID ADVERTISING BY HONING YOUR ORGANIC INSTAGRAM PRESENCE: Know what types of images your customers are already looking at and taking and sharing, so that by the time you turn on advertising, the creative piece will come more naturally, said Matt Collins, vice president of marketing at Ampush.

DONT REUSE: Instagrams distinctive square image format is only one of many reasons marketers cant (and shouldnt) try to recycle ads from other campaigns. Successful brands have developed unique assets specifically for Instagram.

Marketers shouldnt say, Hey, I just bought a space on Instagram, let me recycle a print ad, digitize it and put it on Instagram, said Keller of GMC. As a marketer, it does take a little bit more thought, and a lot more heavy lifting; and it takes a lot more resources and time.

GO FOR THUMB-STOPPING CREATIVE: When promoting its TV series The Flash last year, The CW constructed a 15-second video that showed a child on an airplane that was speeding down the runway, interspersed with quick cuts of Flash imagery.

To try and do something that feels like Instagram and not like an ad has been a creative challenge for us, said Caty Burgess, vice president of media strategies at The CW Television Network. We talk a lot about what thumb-stopping creative is.

CONSIDER USING A DIFFERENT TEAM: Rather than using digital creatives and digital buyers, marketers may want to use resources more familiar with branding, such as those who work on TV campaigns, said Jacob of Salesforce.com. If those folks get involved in Instagram, then I think youll see a higher bar [of creativity] than you might see from the pure digital execution ads you see in digital display or the pure direct response you might see on Facebook or Twitter.

EXPECT SOME CREATIVE LEEWAY: Because Instagram wont be reviewing and approving each ad, the reality is that there will probably be somewhat more flexibility on the creative front. A 13-year-old boy who likes videogames is not likely to have as finely tuned aesthetics as a 34-year-old man who follows fashion designers on Instagram, for example, so the creativity bar may be relative.

But Instagrams Squires was reluctant to give over too much of the control to marketers. With the ads rollout, advertisers will have the flexibility to create something that is very relevant for the individualand thats in line with the tone that has been set in the platform, he said.

FACEBOOK TARGETING IS A HUGE STEP FORWARD, BUT ALSO A RISK Advertisers on Instagram will soon be able to target ads using many of the same capabilities that Facebook offers. Given that the current targeting on Instagram is very broad (only gender, age and geography), this is a big step forward.

One important new feature will be the ability to use Custom Audiences, an ad product that has been a hit with many Facebook advertisers. Custom Audiences allows marketers to bring in their own information (such as an email subscriber list) and target those people.


The connection to Facebook targeting is a primary reason why many marketers are interested in Instagram.

It could be a really powerful one-two punch, said Lee Nadler, marketing communications manager at Mini USA.

The ability to have essentially the same interface that you have when youre doing Facebook advertising, along with the same kind of data characteristics from a targeting capability perspective, will make advertising on Instagram a lot more effective, said Jim Davis, vice president of consumer engagement at Ugg Australia, a unit of Deckers Brands.

But some executives expressed concern over the use of Facebook information for targeting on Instagram. As described above, many people use the two services in different ways, and their activities may not match up.

If I were to ever see an Instagram ad based off my Facebook activity, I would be able to tell because my behaviors are so different between the two platforms, said Meyers of Code and Theory. I think consumers understand that banner ads follow you around the internet. But Instagram is this pure place, and I dont think its ready for that type of targeting.

According to Squires, theres a combination of signals that go into the targeting, he said. The demo targetingage, gender, geographyis very accurate because identity is very strong on Facebook. There are signals on likes and interests and psychographics that come from the Facebook side. There are also signals that you get from the Instagram side.

How should marketers approach targeting on Instagram? Slowly, at least at first, until users get used to the idea.

FACEBOOK DATA IS ONLY ONE PIECE OF THE MIX: I think the most valuable targeting is going to be less about what theyre doing on Facebook and more about what we know about that audience and what theyre passionate about or where theyre at in the product or purchase cycle for a given brand, said Lange of Starcom. Its definitely less about retargeting specific behaviors on Facebook or from another site.

CONSIDER USING INSTAGRAM TO CAPTURE ATTENTION AND THEN FACEBOOK FOR FOLLOW-UP: Mini is one marketer that has experimented with doing a branding campaign on Instagram and then retargeting the users exposed to the campaign on Facebook.

This spring Mini launched a campaign on Instagram to promote its Countryman compact SUV. The automaker teamed up with skateboarder Tony Hawk and his family in a series of ads designed to promote the Countryman as a family-friendly option.

Mini tracked which Instagram users were exposed to the ads and followed up with ads that appeared when those users were on Facebook. Those that interacted with a Facebook ad were then retargeted with additional Mini advertising on Facebook.

You can look at Instagram as an opportunity to start a conversation and get somebody inspired quickly, and then you can retarget them on Facebook, said Nadler. With Facebook, they can go deeper. You can show a longer-form video, you can engage with them in a different way, you can get them to sign up for things.

RECOGNIZE THAT TARGET AUDIENCES WILL BE SMALLER: Facebook is so large that even very specific targeting can still yield a sizeable audience. But since Instagram is so much smaller, that wont be the case there.

Facebook gives you so much specificity you can really spend a lot of time crafting the right target audience, said Eli Perez, a social media analyst at AKQA. It will be interesting to see what sort of carryover that has to Instagram from both a qualitative perspective and also a quantitative, and how big these audiences are going to be.

MEASUREMENT IS IMPROVING BUT NOT FULLY DEVELOPED Marketers generally agree that Instagrams measurement capabilities need work. In a December 2014 Cowen survey asking senior ad buyers in the US to identify the benefits of buying advertising on Instagram, only 6% cited return on investment (ROI) and just 4% cited measurement.


% of respondents

Benefits of Advertising on Instagram According to USSenior Ad Buyers, Dec 2014

User base (in size) 70%

Mobile capabilities 64%

Audience targeting capabilities 15%

ROI 6%

Competition 4%

Measurement 4%

No potential issues 2%

Campaign set-up 0%

Other 33%

Source: Cowen and Company, "Annual Ad Buyer Survey III: 2015 Outlook,"Jan 12, 2015184483 www.eMarketer.com

I think what weve struggled with on the paid side of Instagram is that its hard to really understand where the value might come from, said Davis of Ugg Australia. We try to track some of the same kind of things that everyone else does, but weve seen a really mixed bag on all those measures.

That lack of visibility, combined with the high price of Instagrams brand campaigns, has kept some advertisers on the sidelines during beta testing.

Its a high-dollar ask compared to what you can do on other platforms. And you dont get a lot of knowledge back from it, said Brian Austin, creative strategist at Code and Theory. The insights and the reporting are what make the advertising on social so useful. You get very sharp demographic learnings and key takeaways that you can apply to future spend, future strategies. Instagram has always been a little bit of a blank wall in that regard.

The good news is that it will get betterand the goal is to make Instagrams measurement tools comparable with Facebooks.

There will be measurement parity with Facebook from brand advertising all the way to direct response, said Squires.

That sort of statement will appeal to potential advertisers like Sven Alwerud, CEO and co-founder of Jelly Skateboards. Im hoping [the measurement capabilities are] pretty much the same as for Facebook ads because Im already used to that and so are thousands of other Facebook ad experts, he said.

So far, every brand advertiser that has used Instagram has gotten a Nielsen Brand Effect study (which tracks brand metrics such as awareness, attitude, intent and preference in real time) as part of their ad package. Instagram has conducted studies for more than 475 campaigns.

As Instagram rolls out its action buttons, there will be additional measurement functionality around those specific actions, around conversion and purchase behavior, Squires said.

Because Instagram will be able to tap into what Facebook has already developed, that should quicken the pace at which advertisers become comfortableassuming the metrics continue to be as positive as the brand-oriented ones the initial advertisers have seen.

Weve seen strong results across the board against brand lift as well as message recall metrics, Starcoms Lange said. But where I would really like to see more opportunities from Instagram is in facilitating multi-touch, multichannel attribution, whether thats looking at online KPIs or conversions, or in-store sales.

SHOP NOW HAS ITS LIMITATIONS; APP INSTALL ADS MAY DO BETTER Like its social media brethren, Instagram will be launching a buy button.

When users click either the shop now or install now button on an ad, they will be taken either to a retailers webpage embedded within Instagram or to an app store. The transaction will therefore take place on the advertisers website or in the app store. Instagram will not take a cut of revenue from salesadvertisers will pay for the ad to promote whatever product they want to sell.

It is difficult to imagine that retailers will get more than the occasional sale from Instagram, however. In the US and Western Europe, only 4% of digital buyers surveyed by UPS in October 2014 said they used Instagram to help decide which products to purchase. Asia-Pacific respondents were similarly disinclined, at 6%. Brazil ranked higher, at 19%, but buyers there appeared to be more willing to rely on social media for shopping advice than those in other countries and regions.


% of respondents

Social Networks Used by Digital Buyers in SelectCountries/Regions When Deciding Which Products toPurchase, Oct 2014

Facebook

Google+

Instagram

Twitter

LinkedIn

Pinterest

Other

Don't use any social networks (for product purchases)

Asia- Pacific*

23%

9%

6%

5%

3%

3%

27%

43%

Brazil

65%

35%

19%

22%

12%

-

14%

16%

Mexico

56%

31%

9%

17%

7%

9%

20%

23%

US

20%

8%

4%

6%

3%

10%

1%

65%

Western Europe**

21%

12%

4%

6%

3%

3%

2%

65%

Note: ages 18+ who made at least two digital purchases in a typical three-month period; *includes China, Hong Kong, Japan, Singapore and South Korea; **includes France, Germany, Italy, Netherlands, Spain and UKSource: UPS, "Pulse of the Online Shopper: A Customer Experience Study"conducted by comScore Inc., March 3, 2015187203 www.eMarketer.com

Instagrams partnership with image monetization platform Curalate will continue. Curalate offers a concept called Like2Buy to retailers looking to sell products via Instagram.

We believe that a lot of brands and retailers will want to test what investments theyll want to make in Instagram advertising by using Like2Buy, said Matthew Langie, Curalates chief marketing officer.

Here are a few ways to think about the ecommerce potential on Instagram:

ITS NOT FOR THE EVERYDAY: Rare, unusual or eye-catching items will likely spur some users to shopmore so than, say, grocery staples. Having the ability to just tap, see where it is, and buy it right there is one example where this technology is a plus, said Austin of Code and Theory, who cited NikeLabs special-edition shoes as one type of product that might sell on Instagram. We all know we can go to the grocery store for whatever breakfast cereal is out there, but when these small-batch or unique products [get promoted on Instagram] its really, really important to be able to make a seamless transition from awareness to purchase.

DONT PLAN ON PROMOTING A LOT OF PRODUCTS: The shop now button doesnt mesh well with advertisers that want to display a lot of products, or that want to showcase their entire catalog. Most advertisers will want to highlight just one or perhaps a couple of products and drive commerce that way.

However, once a user clicks through to the advertisers website, they may be able to navigate to additional products and purchase them from there.

APP INSTALL ADS MAY BE A BETTER FIT: eMarketer estimates that $3 billion will be spent on mobile app install advertising in the US this year, and Facebook is a leading recipient of that spending. App advertisers that have grown accustomed to using Facebooks extensive targeting capabilities will appreciate being able to use the same on Instagram.

The easier we can make it for our customers to access our product, the better, said Cara Friedman, social media marketing manager at ClassPass, which has been testing ads with an Install Now button to prompt users to download the companys fitness class scheduling app. Technically, right now you can install from Instagram if you go to our profile and click on our link. The fewer clicks we can have to get people to do what theyre trying to accomplish, the better.


EMARKETER INTERVIEWS

CW Leverages Instagrams Autoplay Ads to Promote The Flash

Caty Burgess VP, Media Strategies

The CW Television Network Interview conducted on June 18, 2015

GMC Aims to Increase Brand Familiarity via Instagram Collaboration

Janet Keller GMC Advertising, Digital, Social Media and CRM Manager

General Motors

Interview conducted on June 22, 2015

Instagram to Open Platform to All Advertisers This Fall

Jim Squires Director, Market Operations

Instagram Interview conducted on June 17, 2015

Direct-Response Ads Pave Way for Monetization of Instagram

Rod Strother Director, Worldwide Digital and Social

Lenovo Interview conducted on June 25, 2015

Sven Alwerud CEO and Co-Founder

Jelly Skateboards Interview conducted on June 19, 2015

Brian Austin Creative Strategist

Code and Theory Interview conducted on June 16, 2015

Allyson Campa VP, Marketing

Dot & Bo Interview conducted on June 25, 2015

Matt Collins VP, Marketing

Ampush Interview conducted on June 11, 2015

Jim Davis VP, Consumer Engagement

Ugg Australia Interview conducted on June 23, 2015

Cara Friedman Social Media Marketing Manager

ClassPass Interview conducted on June 24, 2015

Chris Jacob Director of Product Marketing, Social.com and Active Audiences

Salesforce.com

Interview conducted on June 25, 2015

Kevin Lange SVP, Social Media

Starcom MediaVest Group Interview conducted on June 18, 2015

Matthew Langie CMO

Curalate Interview conducted on June 18, 2015

Jessica Lauria Senior Director, Brand Communications

Chobani Interview conducted on June 23, 2015

Kelly Meyers Senior Creative Strategist

Code and Theory Interview conducted on June 16, 2015

Marshall Manson Managing Director, EAME, Social@Ogilvy

Ogilvy and Mather Interview conducted on April 14, 2015

Lee Nadler Marketing Communications Manager

Mini USA Interview conducted on June 23, 2015

Eli Perez Senior Analyst

AKQA Interview conducted on June 16, 2015


Victor Pineiro VP, Social Media

Big Spaceship Interview conducted on June 23, 2015

Cait Pluto Associate Manager, Customer Acquisitions

ClassPass Interview conducted on June 24, 2015

RELATED EMARKETER REPORTS

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Pinterest for Marketers: What You Need to Know

Video Advertising: How Facebook, Twitter, Instagram, Tumblr and Snapchat are Changing the Rules

RELATED LINKS

Advertising Age

Canaccord Genuity

comScore, Inc.

Cowen and Company

GfK

GlobalWebIndex

JMP Securities

J.P. Morgan

L2 Think Tank

Mobile Marketing Data Lab

Office of Communications (Ofcom) UK

Opinion Box

Pew Research Center

Raymond James

RBC Capital Markets

Reuters Institute for the Study of Journalism at the University of Oxford

Salesforce Marketing Cloud

Shareablee

Strata

Trefis

University of Massachusetts Dartmouth Center for Marketing Research

UPS

Waggener Edstrom Asia-Pacific

YouGov

EDITORIAL AND PRODUCTION CONTRIBUTORS

Cliff Annicelli Managing Editor, ReportsJoanne DiCamillo Senior Production ArtistDana Hill Director of ProductionStephanie Meyer Senior Production ArtistKris Oser Deputy Editorial DirectorEzra Palmer Editorial DirectorHeather Price Senior Copy EditorJohn Rambow Senior EditorAllie Smith Director of Charts

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EMarketer Instagram Advertising-What Marketers Need to Know

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