In June the number of advertisers on Instagram was in the hundreds. Now it's in the hundred thousands. Instagram announced that it surpassed 200,000 advertisers on its network five months since taking its self-serve ad platform global.
While 200,000 is still a small amount compared to parent company Facebook's (NASDAQ:FB) 2.5 million active advertisers, it's more than Twitter (NYSE:TWTR), which told investors it reached 130,000 advertisers in the fourth quarter. Considering Twitter already had 60,000 advertisers at the end of 2014, it's not doing nearly as well as Instagram in attracting new advertisers.
The keys to success
Instagram has several advantages working in its favor compared to Twitter: its parent company already has 2.5 million active advertisers, its audience is more engaged, and its audience demographics skew younger.
Instagram is seeing a huge benefit from Facebook's existing customer base. Facebook integrated Instagram ad purchasing with its main ad buying platform after Instagram opened its API last Summer. In the fourth quarter, Facebook reported that 98 of Facebook's top 100 advertisers also advertised on Instagram. The integration of Instagram ads into Facebook's ad buying tools undoubtedly is playing a big part in Instagram's ability to attract new advertisers.
But Instagram's audience is valuable in its own right. Users are highly engaged with the content on the platform. Engagement with brands on Instagram is ten-times higher than on Facebook and a whopping 84-times more engagement than Twitter, according to a study from Forrester Research. Moreover, Instagram says 75% of users "take action after being inspired by an Instagram post." That translates into significantly more effective ads.
Additionally, Instagram's audience skews toward younger users coveted by brand advertisers. In Piper Jaffray's semiannual survey of American teens, one-third said Instagram was their most important social network. Twitter was still second with 20% saying it's most important. When it comes to time spent, however, the gap between Instagram and Twitter is even bigger. 45% of respondents said they spend most of their time using Instagram versus 28% for Twitter in a Refuel survey.
Instagram is just getting started
What's most surprising about Instagram's announcement is that it's just getting started. A survey from eMarketer found that just 32% of U.S. businesses had a presence on Instagram in 2015. Comparatively, 66% of businesses were on Twitter and 85% of businesses were on Facebook. But the number of businesses on Instagram is expected to rise rapidly. eMarketer expects the percentage of U.S. businesses on the platform to reach almost 71% next year, surpassing Twitter.
As more businesses join Instagram, the total number of advertisers will likely grow with it. Facebook has consistently converted 5% of businesses on its platform into advertisers. Twitter, however, has only been able to convert a small percentage of the businesses on its platform. Based on the early results and Facebook's track record, it's a good bet Instagram's conversion rate will be closer to Facebook's than Twitter's.
Instagram's ad products are fairly limited in the early going. Expanding its ad products and offering better conversion measuring should help grow its total advertisers as well as average ad price.
In just a few months Instagram was able to overtake Twitter's total advertiser number, but it's just getting started.
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Adam Levy has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.