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Instagram could turn into a bigger money-maker with its co-founders gone

JP Mangalindan
Chief Tech Correspondent
FILE – In this Tuesday, June 19, 2018, file photo, Kevin Systrom, CEO and co-founder of Instagram, prepares for an announcement about IGTV in San Francisco. (AP Photo/Jeff Chiu, File)

With Instagram co-founders Kevin Systrom and Mike Krieger stepping down from their roles at the popular photo-sharing network, the company might start to ramp up its monetization efforts.

“I’m sure Systrom and Krieger stood in the way of certain monetization efforts given that Instagram was and will always be their baby, and they wanted to maintain a certain look and feel of user experience,” explains Scott Kessler, an analyst and director of equity research at CFRA. “That’s what founders are largely focused on. Without them standing in the way of ideas and changes Facebook may have in mind, I would absolutely think the business is going to be more open to and inclined to various monetization efforts.”

Although the co-founders did not give a specific reason for resigning, the moves come after months of internal squabbles over product changes, staffing changes and Mark Zuckerberg’s increasing control over Instagram.

Less resistance to making Instagram a money machine

Systrom’s expected successor as CEO? Adam Mosseri, Instagram’s head of product and longtime Facebook employee who is also a member of Facebook CEO Mark Zuckerberg’s inner circle, according to a report from The Information. (Mosseri previously ran Facebook’s popular News Feed product.) With Systrom and Krieger out of the way and a Zuckerberg loyalist like Mosseri installed, there’s certainly much less a path of resistance to making Instagram more of a money machine that it already is.

Researcher eMarketer estimated in June that Instagram’s revenue could account for 16% of Facebook’s overall revenue over the next year — an increase from just over 10% during 2017. That kind of untapped revenue potential must be tempting to Facebook, which has seen user growth slow down recently. Instagram, meanwhile, continues to amass new users at a steady clip, with the app expected to surpass 2 billion users within the next five years, according to Bloomberg Intelligence.

Instagram’s increased efforts could include more ads finding their way into users’ feeds, which Kessler points out have steadily increased over the last one to two years. Until now, Instagram has been widely lauded for the slow roll-out of ads since 2013, focusing on ads from lifestyle brands that seem relevant and visually compelling for their targeted users. But that fine balance could potentially be upended as Instagram’s user base continues to grow and Facebook’s revenues expectations increase.

E-commerce on Instagram

Another path to monetization? E-commerce, suggests Altimeter Group industry analyst Omar Akhtar. Instagram already allows users to tap on ads in their feeds to purchase the featured items off third-party websites, but Instagram could do more to capture user dollars. The company is reportedly developing a standalone app called IG Shopping, which would let Instagram users peruse collections of items from merchants they follow and make purchases inside the app. If IG Shopping launches, Instagram could certainly capture more revenues, with more transactions coming via Instagram and Instagram charging merchants a small fee per purchase.

Such initiatives would certainly appease Facebook (FB) management and shareholders, but whether the current experience Instagram users currently enjoy remains intact remains to be seen.

JP Mangalindan is the Chief Tech Correspondent for Yahoo Finance covering the intersection of tech and business. Email story tips and musings to jpm@oath.com. Follow him on Twitter or Facebook.

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