Adam Mosseri, the former Facebook executive who took over as Instagram’s boss last October has offered significant insight into the social media app’s long term business strategy in his first interview on the topic. He believes that photo-sharing app Instagram, which Facebook acquired in 2012 for just $1 billion has huge untapped commercial potential that he and his team plan to unleash by ‘joining the dots’ between its 80 million+ user base, army of ‘influencers’ and sellers of products and services.
Mosseri believes that a combination of encouraging Instagram’s users to indulge more in ‘window shopping’ and a seamless ecommerce experience centred around a ‘native’ in-app checkout and ‘shopping bags’ where wish lists can be held until purchase can “unlock a lot of value from everyone involved”.
Until now Instagram’s monetisation model has been largely based on advertising. Users click on adverts and are redirected to the third-party websites the advertisers. But the Instagram management are convinced that they are now seeing clear demand from the app’s users, brands and influencers, some of whom have huge followings on the social media, for a more direct ecommerce offering.
Despite significant scepticism over the value of the deal back in 2012 when Facebook agreed to pay $1 billion for a loss-making social media app run by a team of twelve and no revenues, the buy has proven a masterstroke. It is hugely popular with younger users, many of whom do not use, or are not particularly active users, of Facebook itself. Some estimates put Instagram’s current stand-alone market value at close to $160 billion 7 years on from the acquisition. But Mosseri and his bosses at Facebook are confident that it can be worth much more. But increasing its value significantly relies on driving revenues – and in-app online retail is considered to be the key to achieving that.
Instagram already contributes around 25% of parent-company Facebook’s advertising revenue – estimated to reach $15.8 billion this year. But analysts believe in-app ecommerce revenues could start to significantly boost that in the near future. Deutsche Bank thinks by as much as $10 billion by 2021 – just 2 years from now.
In order to realise that huge boost to its income, Instagram first has to invest in building up the infrastructure necessary to support a significant online retail operation. Mosseri says that this infrastructure includes elements such as establishing partnerships with payment providers in different countries, buyer protection and inventory systems. Processing payments might become a significantly easier task if Facebook’s grand plan to roll out its own cryptocurrency, Libra, next year.
While Instagram will launch ecommerce functionalities in the near future, Mosseri believes it will be a 5 to 10-year project before the functionalities are fully built out. At that point he believes that Instagram can represent a challenge to online retail giants Amazon and Alibaba. Targeted advertising will be optimised through the use of new data and analytics software Facebook has been developing. He insists that a level of commission will be found that is both attractive to his company while still providing sellers with a strong ‘return on investment’.