Less than a year after opening up its advertising platform to everyone, Instagram has 500,000 active advertisers. For reference, it took Instagram's parent company, Facebook (NASDAQ:FB), almost six years after opening its self-serve ad platform to reach 1 million active advertisers. (Facebook didn't report its active advertisers before that milestone.)
Of course, Instagram had the benefit of its parent company now sporting more than 3 million active advertisers, and it didn't open its self-serve ad platform until it had nearly 400 million users. Still, it looks like 500,000 active advertisers is just the tip of the iceberg for Instagram.
500 million users spending a lot of time
Earlier this year, Instagram announced that it surpassed 500 million monthly active users. 300 million of those users are logging into the app daily. That's a larger user base than any other social network not named Facebook. Instagram's daily user base is more than twice the size of rival platforms Snapchat and Twitter.
What's more, those users are highly engaged. The only social networking apps with more time spent per users between the ages of 18 and 34 were Facebook and Snapchat, according to a recent survey from comScore. And Snapchat's lead is minimal.
Instagram's feed-based layout lends itself more readily to advertising than Snapchat's unique video format. Specifically, it's fairly easy to adapt ads already made for platforms like Facebook and Twitter into Instagram ads. Snapchat ads are costlier to produce. The point is more advertisers are capable of producing Instagram ads compared to Snapchat ads.
Making it easier to become an advertiser
Facebook COO Sheryl Sandberg attributes a lot of Facebook's ability to attract new advertisers to its Pages product. "Over 80% of new advertisers start with entry-level tools like a promoted post or Page like." Instagram didn't roll out its Pages equivalent until earlier this year.
In the two months since launching Instagram Business Tools, 1.5 million businesses have converted their profiles to the Pages equivalent. The new tools provide more insights into how a business' content resonates with its audience, and includes a simple "promote this post" option to make it just as easy to advertise on Instagram as it is on Facebook.
But 1.5 million business profiles is nothing compared to Facebook's 60 million business Pages. Even at less than one-third the size of Facebook's total user base, Instagram has the potential to attract 15 million to 20 million businesses. Twitter, with just 313 million active users, says it has 9 million businesses on its platform. Instagram, with its larger user base, likely has many more.
And keep in mind Instagram is still growing rapidly, so there's even more potential. Converting just 5% of those business profiles into advertisers -- the same ratio Facebook boasts -- would take Instagram to 1 million total.
Room to grow
Instagram's still in the early stages of inserting advertisements into users' feeds. As such, it's ad load -- the number of ads users see compared to organic posts -- still has room to grow. So, Instagram still has plenty of room to add new advertisers without seeing its average ad price climb too much.
Facebook has been able to increase its ad prices even while increasing ad impressions for the past few quarters. Facebook's News Feed, however, is nearing saturation in ads, according to CFO Dave Wehner, so Facebook will focus on increasing ad prices. That could drive marketers looking for value to Instagram -- although by some measures, Instagram ads are significantly more expensive than Facebook ads already.
There are quite a few factors indicating that Instagram's 500,000 active advertisers are just the start. More advertisers means the average user sees more relevant ads, advertisers see higher returns on investment, and Instagram's ad revenue climbs higher and higher. With analysts already expecting over $3 billion in revenue from the photo-sharing app this year, the growth will be very meaningful for Facebook and its investors.
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.