This is the latest in LSA’s Skate To Where the Puck is Going series. Running semi-weekly, it examines the moves and motivations of tech giants as leading indicators for where markets are moving. Check out the entire series here, and its origin here


Instagram continues to be Facebook’s saving grace. Amidst Facebook’s identity crisis and public backlash over data collection, Instagram’s public image remains mostly positive. More importantly, engagement levels continue to ratchet up as it launches (copies) popular formats like stories.

Instagram has one billion active users, and 500+ million Stories users. The latter is more than Snapchat’s total active users across all formats — stories and otherwise. Add it all up and these factors make Facebook’s then-eyepopping $1 billion Instagram acquisition in 2012 an undisputed win.

Story Time

But more important than engagement metrics is how Instagram is being monetized. The background is that Facebook is running out of ad inventory in the News Feed as global usage growth matures. That means it has to find other pastures for ad monetization so as not to saturate the core product.

That’s where Instagram steps to the plate to further prove its value to Facebook. That’s also the case with WhatsApp, Messenger and Portal. But among these, Instagram has the biggest sweet spot in its alignment with sponsored content (not the case with WhatsApp), and scale (not the case with Portal).

Because Instagram has become a place to discover products — especially in verticals like fashion — sponsored content integrates naturally. That’s further cultivated with Instagram’s growing integration of transactional functionality right within the app to reduce friction in impulse purchases.

This has all led to Instagram Stories’ growing share of Facebook’s ad revenue — currently at 10 percent according to Socialbakers. All of the above factors are driving this growth, but it’s happening slowly as Facebook treads carefully so that it doesn’t squander the opportunity with shortsighted ad saturation.

Think Small

The question this all leads to: Is Instagram Stories primed for SMB advertising? Will the above growth and revenue diversification involve SMBs, just as Facebook itself has attracted 90 million of them? The latter is driven by SMB familiarity with Facebook, as well as its ease of onboarding.

So what would the corresponding SMB draw to Instagram Stories be? For one, Facebook can bundle Instagram with Facebook advertising to tap into existing SMB advertisers and grow their total spend. But the larger challenge with SMBs is product/market fit… Instagram is inherently brand-oriented.

Ironically, that could be its SMB draw. SMBs’ longstanding marketing challenge is having to educate consumers of their existence. Well-known brands don’t have that educational barrier, and its more about exposure and repetition. Could Instagram Stories be a tool for SMBs to establish brand equity?

One thought is that relatively low production barriers for Stories represents a possible path to gaining TV ad-like exposure. Put another way, would this be a way for SMBs to gain multimedia benefits combined with the granular audience targeting they may already know and enjoy on Facebook?

Istanbul, Turkey – December 15, 2018: Person holding a brand new Apple iPhone X with Instagram profile on the screen. Instagram is an online mobile social networking service, launched in October 2010.
Devil’s Advocate

That could be a winning formula. However, the question remains if Instagram wants to be a place for SMB ads. The product’s cachet is aligned with fashion brands, which feel natural as part of the UX as mentioned above. Would the same be true for hardware stores and dentists? likely not.

So this could go in several directions and is admittedly speculative to draw out the thought exercise. It’s likely a question of cost/benefit for Facebook. In other words, the incremental revenue from SMBs on Instagram (paid) Stories is likely less than the cost of the corresponding detriment to user experience.

Regardless of how Facebook chases the opportunity and cultivates Instagram Stories among SMBs, a small segment of savvy merchants — or marketing vendors that serve them — will find ways to master it on their own. This is already happening from SMB-focused social marketing players (a separate article).

We’ll keep watching for evidence of such activity and let us know if you have insights or examples.

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