Source: Instagram

It's been only a few months since Instagram opened up advertising to all businesses, but it's already having an impact on Facebook (META -1.41%). CFO Dave Wehner told investors on the company's fourth-quarter earnings call, "In Q4, we also benefited ... from increases in ad inventory from Instagram."

While Facebook didn't provide any exact details of Instagram's ad business, Re/code got its hands on some data from Brand Networks, one of Instagram's official ad partners. Its data shows a huge increase in total ad impressions on Instagram since it opened its ads API at the end of August. While Brand Networks' business is just a portion of the ads shown on Instagram, it can give us an idea of what to expect from the photo-sharing network in 2016.

A lot more ads
During the first month Instagram opened its ads API, Brand Networks served 50 million ads. Four months later, in December, Brand Networks served 670 million ads on Instagram.

Keep in mind the ad network accounts for only a portion of ads on Instagram, so Instagram users are now likely seeing billions of ads a month. Spread over 400 million users, however, that's only a few ads per user each month, still well below Facebook's average. That means there's still a lot of room for Instagram to increase its ad load.

Investors shouldn't expect Instagram to increase its ad load too aggressively, though. It's still adding users at a steady pace, which naturally adds to its ad supply. As a result, average ad prices on Instagram have remained high even as supply increased. In August, Salesforce found that average ad prices on Instagram are about twice as high as on Facebook. Brand Networks shows that ad prices in December were about the same as they were in September.

Meanwhile, Twitter (TWTR) has seen its user growth slow to a crawl, but it's still hesitant to increase its ad load despite sitting at around one-third of its long-term goal. Twitter is still seeing strong revenue growth from improving its ad products, which either increases its average ad price or increases its ad engagements. Its introduction of autoplay video led to a 165% spike in ad "engagements" during the third quarter but decreased the average price brands would pay for Twitter ads by 39%.

As revenue growth begins to slow at Twitter, it may need to pull that last lever and increase ad load. Conversely, Instagram can maintain a relatively low ad load and still grow its share of the market by continuing to grow its user base and maintaining relatively high ad prices.

Where are the ads coming from?
Ad budgets don't just explode overnight when a platform like Instagram says anyone can advertise to its users now. Those ad dollars have to come from somewhere. On Facebook's fourth-quarter earnings call, COO Sheryl Sandberg was pressed about whether Instagram ads have been incremental to Facebook or if it just represents a shift in brands' Facebook ad budgets.

"In the short run, some of the spend is incremental and some of it isn't," she answered vaguely. "In the medum to long run, however, we believe that we are really well positioned to take share from other platforms," she added. Earlier in the call she noted, "98 of the top 100 advertisers on Facebook also advertised on Instagram in Q4." But that shouldn't be a surprise or a concern; Facebook has 2.5 million active advertisers. There's going to be a lot of overlap.

There's a lot of potential for Instagram to attract an outsized portion of the growth in digital display advertising. Shifting ad budgets from Twitter to Instagram seems like a natural fit, considering both social networks follow similar mechanics, offering similar targeting potential.  Additionally, Instagram is reportedly hiring Twitter's former product head, Kevin Weil, to lead the product at Instagram. Weil specializes in revenue products -- i.e., ads. With the more engaged audience of Instagram, Twitter may find its average ad spend declining over the next few years as Instagram ramps up its ad products.

For now, Instagram's ad business, despite its significant growth, represents only a small (but non-negligible) portion of Facebook's ad business. While some of the business is incremental to Facebook, investors will have to wait a bit before it has a major impact on the social network's bottom line. In the meantime, both Facebook and Twitter investors should keep a close eye on its developments.