Instagram is a different product from Facebook (NASDAQ:FB). Vice president of global marketing solutions at the social network, Carolyn Everson, wants to make that clear. Speaking at a recent JPMorgan technology conference, she described the key difference:
Facebook, you follow people that you're connected with -- your friends, companies that you have a connection with. On Instagram, people are really following their passions and their interest, and so it is not uncommon for somebody on Instagram to follow people that they don't know if they happen to be inspired by what they are putting on Instagram.
Instagram is more like Twitter (NYSE:TWTR) than Facebook in the way relationships are formed. I've written previously about how Twitter's most valuable asset is its interest graph, which could result in it generating higher ad prices than Facebook if management can tap its full potential. With similar characteristics, the same may be true of Instagram.
Discovering interests instead of connections
Although Instagram helps you find your friends on the photo-sharing network when you sign up, it's also built a very good Discover section, which it places next to a user's main feed. Based on photos a user likes and photos that are popular in his area, Instagram will surface dozens of photos and accounts for that user to follow. The easy consumption of photos makes it easy for a user to curate a feed full of content that he is most interested in.
Twitter also provides the same potential as Instagram in that the signal-to-noise ratio for a well-curated timeline is one of the best indicators of a user's true interests. However, the ability to discover accounts to follow on Twitter is significantly more challenging compared to Instagram. As a result, many users are left with poorly curated feeds, which don't provide the amount of data necessary for Twitter to place well-targeted ads in their timelines.
The ease of discovery on Instagram and the ability to curate a feed of photos that's interesting to each user is evident in the engagement levels of its audience. Facebook says the average Instagram user spends 21 minutes in the app per day. And while there have been indications recently that some users are abandoning the app, the overall growth in the user base indicates it's doing a pretty good job retaining its users as it ages.
Capitalizing on those interests is hard
While Instagram makes it easy to telegraph your interests to the Facebook mothership, capitalizing on those interests is much more difficult on Instagram than on Facebook. Everson says that some marketers view Instagarm as a replacement for print advertising, which relies much less on interests compared to Facebook and Twitter advertising.
With Instagram's early forays into advertising, it's not giving advertisers much reason to think of it any differently. It doesn't provide links to external websites for the most part, and the targeting data it provides is as basic as it gets.
The company is working to change that, however, and introduced direct-response ads recently. It's also opening up more of its interest data to advertisers later this year. Everson says that Facebook will be keeping an eye on consumer behavior on Instagram, and that's probably more true than ever as it rolls out these new features for businesses. I'd expect Instagram to take a conservative approach with more targeted advertising to ensure it doesn't jeopardize the user experience.
It's worth noting that Twitter's move into direct-response advertising has allowed it to grow its ad revenue in the past, but the switch to objective-based pricing last year showed the flaws in its ad inventory during the first quarter. Ad revenue fell well short of expectations, which the company attributed directly to a poor response from advertisers to its direct-response ads.
It goes to show that even if the targeting data are there, it's no guarantee that advertisements will convert for businesses. If Instagram users respond poorly to advertisements in their feeds (or don't respond at all), it's going to be hard for Instagram to fully capitalize on its interest graph.
Adam Levy owns shares of Apple. The Motley Fool recommends Apple, Facebook, and Twitter. The Motley Fool owns shares of Apple, Facebook, JPMorgan Chase, 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.