Instagram has become the go to advertising platform for companies of all sizes wanting to increase brand awareness and grow sales. It is estimated advertisers will spend over US$10 billion with Instagram this year.
Historically, Instagram advertisements have directed users away from the Instagram platform to complete a purchase. For advertisers, this has risked the loss of the sale due to cross platform friction and consumer confusion, but has also hindered advertisers from capturing critical customer information.
The solution – Instagram checkout
In March Instagram rolled out Checkout, an innovative feature enabling users to transact purchases without leaving the platform. In simple terms this means Instagram became a marketplace. Initially Checkout was offered to 26 well known global brands (including Adidas, Zara, H&M, Mac Cosmetics and Nike) but following the success of the trial, Checkout will be available to more retailers over coming months.
This week Adam Mosseri, the head of Instagram outlined his vision for the future. He hopes functions such as native checkout, where users can buy products without leaving the app, and shopping bags, enabling users to gather items into a shopping cart can “unlock a lot of value from everyone involved”.
Why does this matter?
E-commerce has grown significantly in recent years, with sales in excess of $520 billion in the US last year, which are expected to grow at 20% per annum over the next three years. While Instagram will not collect a fee for processing transactions it will benefit from retailers improving sales and therefore spending more advertising dollars on the platform. We believe the push into e-commerce will provide benefits to retailers, users and shareholders as Checkout gains traction.
How did Instagram become a Facebook company?
Facebook purchased Instagram for US$1 billion in 2012. At the time analysts questioned the value of the transaction, as the small Instagram team generated no revenue from their app. Today Instagram is estimated to be worth as much as $158 billion to Facebook, a figure likely to grow rapidly.
About the Author
The Education of a Value Investor by Guy Spier
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