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Facebook’s next big business? Instagram starts selling goods inside its app

Olivia Feld
Facebook owned Instagram is launching its own in-app shopping service - PA Wire/PA Images

Instagram is seeking to muscle in on the £2 trillion online shopping market as its owner Facebook plans to move beyond its dominant position in social media advertising.

The photo-sharing app has signed up major fashion brands including H&M and Burberry to test a feature that lets users make purchases within the Instagram app, with Facebook taking a cut of sales.

It comes as Facebook grapples with questions about its advertising business amid a series of privacy controversies.

Advertising accounts for more than 98pc of Facebook’s revenues but the social media giant is hoping to expand into markets such as payments and shopping as regulators and users become increasingly sceptical of how it gathers the data used to target adverts.

On Tuesday Instagram began testing its "Checkout on Instagram" function with 23 fashion retailers in the US, saying it plans to expand the list of retailers.

When users see an Instagram post featuring a product they can tap directly on it to be sent to a shopping page where they select options such as colour and size. Users can then enter their payment details and confirm their order without leaving Instagram.

A preview of the Checkout page Credit: Instagram

A previous Instagram shopping feature required users to switch to a web browser to complete their purchases, but by keeping a transaction within the confines of Instagram’s app, the company to handle features such as delivery alerts and returns, as well as charge a commission on transactions.

Instagram said it will introduce a “selling fee to help fund programs and products” to make checkout possible, but declined to say what percentage it will take from the retailer on each transaction.

Instagram, which Facebook bought for $1bn in 2012 and now has more than one billion users, is seen as a potentially lucrative way for the company to move into online shopping.

It has tested features such as allowing users to tap on a brand’s post in order to be directed to their shopping page as well as a shopping function in Instagram Stories, an increasingly popular part of the app in which photos and videos disappear after 24 hours.

Facebook itself has been taking a growing interest in e-commerce, allowing users to sell items on its Marketplace feature. It is also working on a cryptocurrency that could be used for online shopping.

The company does not reveal how much of its advertising revenue comes from Instagram, but it has been estimated that it will account for 30pc of Facebook's ad revenue by 2020, at which point it would represent 70pc of the company's new revenue.

Facebook tells prospective retail partners that 90m Instagram account holders tap on a shopping post each month.

Global e-commerce revenues rose 18pc to an estimated $2.8 trillion (£2.1 trillion) last year. In the UK, one fifth of all retail is now done online, according to the Office for National Statistics.