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Why E-Commerce Could Be Instagram's Biggest Hidden Opportunity

By Jeremy Bowman - Jul 13, 2017 at 6:06PM

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Nike's new partnership with Instagram shows how e-commerce could be a valuable part of Instagram's business.

Nike Inc (NKE 1.44%) made waves last month when it said it would begin selling on Amazon.com (AMZN 0.76%) for the first time ever, but the sportswear giant made another announcement that may be more telling about the future of e-commerce. As the Swoosh aims to branch out its online relationships, it also said it would make some products available on Instagram, the popular Facebook (META -0.85%)-owned photo-sharing app. Nike will use Instagram's shopping tags, which allow users to tap on an image to see product descriptions and prices, and in some cases, go to Nike's website.

The photo-sharing logo for Instagram.

Image source: Instagram.

That Nike chose to launch simultaneously on Amazon and Instagram shows that the company values the new platforms equally for selling. Nike had resisted Amazon for years as it felt that selling would cost it control over its brand, but it's readily embraced Instagram, along with many other brands. It has more than 73 million followers on the platform, and many more when sub-brands like NikeWomen and Jumpman23 are included. Those millions are there by choice -- to engage with the brand. It's no surprise, then, that Nike would choose to sell on Instagram.

Brands love Instagram

There's likely no better internet property for brands to engage with customers and fans than Instagram. The app is designed for users to quickly consume beautiful, glossy photos that are filtered to the poster's desires. 

Instagram now has 700 million monthly average users, more than any other social-media site except Facebook. With Instagram's growth and engagement, it's become the go-to social-media site for fashion brands. Engagement rates, especially for fashion and beauty brands, are much higher than they are on competing sites like Facebook and Twitter.

Nike's posts on Instagram regularly get approximately 1 million likes or views. No other fashion brand has as many followers. 

The e-commerce opportunity

Instagram has been slow to embrace e-commerce, as the app is primarily an advertising platform. Facebook is an advertising business, as well, and its expertise lies in ads, not e-commerce. It bought Instagram because of its fast-growing user base and potential as an ad platform.

Other social-media sites have struggled to break into e-commerce as experiments like "buy" buttons have mostly fallen flat. Instagram, however, has moved forward since it launched its own buy button two years ago. It's partnered with a number of high-profile brands, like J. Crew, Kate Spade, and Warby Parker, on the same shopping tags that Nike is starting to use. 

E-commerce is a delicate balance for Instagram, as its primary purpose is to share photos and videos, not to sell. However, it offers brands -- something that even Amazon can't -- an attractive platform where hundreds of millions of shoppers visit everyday and want to engage. 

While Amazon has mastered the art of the online transaction, it downplays brands in order to do so. Nike launched on Amazon to play defense, as third-party vendors were selling thousands of products on the e-commerce site, undermining Nike's own brand and control. But selling on Instagram is an offensive move. Many, if not most, of the 73 million Nike followers on the photo-sharing app are customers of the brand, and adding the option to purchase items shown in photos should only push brand engagement and sales.

Instagram began hiring a team of 50 people to work on e-commerce with a horizon of 2-to-4 years. It's unclear where the social-media darling is headed, but the potential is huge, and brands are clamoring for such options. With its massive audience and popularity with brands, Instagram has the potential to challenge Amazon in a way that almost no other company can. As it continues to grow and evolve, expect e-commerce to be a major factor in its future ambitions.

Jeremy Bowman owns shares of Nike. The Motley Fool owns shares of and recommends Amazon, Facebook, Nike, and Twitter. The Motley Fool has a disclosure policy.

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