5 Future Revenue Streams That Could Justify The $1 Billion Instagram Acquisition

I remember when Google acquired Youtube for $1.6 billion, the first thing that people did was question how would they ever make money? It’s taken them a few years but they’re there now).

It was only only two years ago when people asked the same thing about Facebook when they had a huge user base but little in the way of revenue. The same questions are being asked of Twitter as we speak.

These big companies usually transition to revenue pretty well (let’s exclude Myspace and Bebo from the equation) once they have a huge user base, and the latest service to come under the spotlight is Instagram. How could Facebook pay so much money for a service that has never made a penny and has 14 employees?

Well the answers lies in the 40 odd million users they already have and that by the end of the year, they could easily be at the 100 million mark . That sort of user base provides scale and although they won’t look at revenue while it’s scaling, Facebook could have entirely different plans for them (folding them into Facebook itself). But let’s just say, for arguments sake, they do stay independent and reach 100 million users. Here are five of the ways in which they could instantly drive a huge amount of revenue.

Clickable Images

Pinterest has had huge success by basically aggregating the links that you like together. At the moment on Instagram, all of your action stays within the app, but they could switch on links that were clickable and allow brands and businesses to post images that linked to something else like a web page, mobile app or special discount. It would be a very delicate balancing act in terms of not annoying users, but I’d be open to seeing items like food specials in my stream from my favorite restaurants as links that clicked through to a coupon.

Sponsored Images

Brands have been dipping their toes into Instagram over the last year, but they have been doing so of their own accord. They don’t really have any premium brand or businesses accounts like what you have on Facebook. If Instagram was to introduce these and allow advertisers to put images in to the stream (something like what Twitter is doing) then it could unlock huge revenues. The big question is would it annoy users who currently enjoy the pure and social experience?

Location Aware Advertising

A large amount of users on Instagram tag their images by location using the GPS on their phone. Imagine getting served up pictures from brands and businesses based on where you were and what you had shared in the past. This is a game that Facebook has been trying to get into over the last couple of years with limited success, but there’s no doubt that Instagram has the components and data to make this a reality. Add in the fact that Facebook has vast experience in developing an advertising platform from scratch and this could turn into a massive cash cow.

Premium Filters

Instagram could switch this revenue stream on pretty much immediately and offer a larger selection of filters that people could download for a couple of dollars. The reason that it hasn’t been done is because the company is scaling, still trying to evolve as a service with no focus on revenue at all and rightly so. This wouldn’t be the biggest revenue stream and you certainly couldn’t build a whole business on it, but it would drive a few hundred million dollars easily enough.

Desktop Contextual Ads

So up until now, the Instagram success story has been all based on their mobile experience. The company has a very ‘light’ website that doesn’t really do a lot apart from let you see pictures, but with Facebook’s backing that could change. Mobile is clearly the future, but as Facebook has shown, the desktop can be a source of huge revenues. Until now, the web experience has been left to third party developers, but you could see a web service that gets billions of page views per day popping up very quickly.