Facebook just spent $1 billion on a company with no revenue. Facebook doesn’t make substantial revenue off of its own mobile apps and it’s not clear how the addition of Instagram will help the company monetize its mobile offerings.
That can’t thrill Wall Street as the social platform heads toward its initial public offering. But adding Instagram to Facebook does create some intriguing new possibilities for making money off of mobile.
Data, Data, Data
Facebook generates a tremendous amount of data about its users. That is especially true with the Open Graph and “verb” actions like read, write and listen. Photos for Facebook are already a huge driver of both interactions and data.
But while users often upload photos to Facebook, they actually take them with Instagram. The amount of data generated from a mobile device’s camera is significant, from location to time of day to any number of data points that can be associated with a smartphone’s sensors. True, FaceBook (and Twitter, Google+, etc.) also has the ability to function as a camera, but Instagram is a dedicated camera that happens to have a social element to it.
Think about it this way: Facebook just bought a camera. A very popular one.
Instagram itself was not in a position to capitalize off of its data. It did not have ads and it provided its API for free (with the right to charge the heaviest users if it deemed it appropriate). Implementing ads would be a recipe for disaster for Instagram and its fickle, emotional user base. But what if Facebook can take that data and provide ads against it without actually putting advertising into the app itself?
Here is the trick: Facebook has the ability to grow Instagram’s user base by tens if not hundreds of millions of users. The more people use the app, the more of that rich metadata Facebook generates. Facebook can then turn around and serve ads against that data on both the Facebook desktop and mobile clients. It is a matter of linking the back-end infrastructures of the two companies without overtly changing the Instagram user interface.
Driving Desktop Interaction Through Mobile Content
Inside Facebook notes that Facebook has been helping Instagram create a unique Open Graph application that circumvents user authorization for posting Instagram photos on Facebook’s Timeline.
The key is that Facebook can monetize mobile without actually having to place ads within mobile apps themselves. Facebook is a browser-based system, and as such, it does everything in its power to push users toward browser-based interactions. That includes Facebook’s iPad, iOS and Android apps, since there isn’t much that’s “native” about them. Instead, they run through a mobile browser with a wrapping around them that provides native functionalities. The more Instagram photos that Facebook can push to its platform, the more interaction is created and the bigger Facebook’s opportunity to serve ads.
Image source: Inside Facebook
The concept is a bit tricky. For Facebook, it does not matter where the content originates, as long as it ends up somewhere on the company’s platform in such a way that people can interact with it. What Facebook acquires from Instagram is a direct avenue for gaining content from the mobile ecosystem. Sure, users could upload photos from their phones, but Instagram photos will likely be pushed directly to the platform through the Open Graph. Facebook also gets to keep all the data generated though that interaction.
Facebook is never going to be a paid service. Instagram too will likely always be free. That does not stop them from trying to push users toward paid value-added services. Paid filters? What about paid services built off of the Instagram API? Now that Instagram is tied to Facebook, most of the photo-sharing service’s third-party app developers are indirectly tied to Facebook as well.
Facebook’s secret in plain site is the fact that it has a payment system attached to it. Everybody knows that Facebook Credits exists but nobody actually uses it. The company would love to grow the project, and its biggest opportunity to do so is through mobile and in-app purchases.
This is where Instagram could be a big spur for Facebook’s mobile endeavors, pushing and promoting many of the social platform’s projects into prominence. All it takes is one popular app with a distinct feature for users to take notice.
Facebook’s monetization schemes for mobile will likely revolve around user data and advertising, but the ability to create transactional data through a popular service has to be enticing as well.
Is Instagram the key to helping Facebook make real money from mobile? Let us know in the comments.
Uncredited images courtesy of Shutterstock.