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Instagram's ads aren't just for brand building anymore. They're also for business building.
Instagram is tweaking its ads and the ways advertisers can buy them to make them as suitable for pushing product to likely customers as for promoting a brand to just about anyone.
In short, Instagram's ads and ad-buying process are becoming more on par with those of its parent company Facebook. For example, by the end of this year a retailer would be able to set up an Instagram ad targeted to its existing customers that includes a link to the retailer's e-commerce site and run the ad without calling up an Instagram sales rep -- just like it would for a Facebook ad.
"What we're seeing now from Instagram is really them maturing the business model. When they first came out of the gate [with ads in October 2013], it was very much a brand play," said Jonathan Schaaf, president of digital investment at Omnicom Media Group, which inked an ad deal with Instagram worth up to $100 million in March 2014.
Instagram is expanding beyond the small pool of digital-spending brand advertisers to the bigger pool of digital-spending direct-response advertisers. Individually those direct-response advertisers -- which include giants like AT&T and Geico as well as mom-and-pop shops -- may not all spend as much annually as the bigger brands. But because they know more precisely who they want to see their ad and how they want to measure the ad's effectiveness -- meriting their categorization as "direct-response" advertisers -- they're typically willing to pay more per ad and able to justify the higher cost.
Currently direct-response advertisers, in aggregate, are spending more money on digital ads than brand advertisers. Direct-response campaigns accounted for 59% of the $50 billion advertisers spent on digital ads in the U.S. last year, according to eMarketer estimates.
But these direct-response advertisers are usually only willing to pay for an ad if it leads to a certain outcome. These advertisers care about clicks more than eyeballs. That's why Instagram is rolling out links to all of its photo ads.
After adding links with its multi-photo Carousel ads in March, Instagram is rolling out links to its original single-photo ads (but still not adding them to unpaid Instagram posts). Beyond looking at a pretty picture and liking or commenting on it, brands can now try to get people to click on the ad to do things like buy a product on an advertiser's site or download an app. But brands won't be able to add the calls to action to Instagram's video ads, and people won't be able to purchase advertisers' products within Instagram.
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"It's consistent with Instagram being a shop window, a lookbook, a product catalog. This is the next stage in enabling that. We're not going to the state of in-app commerce, but we do think this is both an advertiser-desired and a community-desired set of features," said Instagram's global head of business and brand development James Quarles.
At first, advertisers will have two ways of paying for these direct-response ads. They can pay for each click on an ad's included link. Or they can tell Instagram how much they'd be willing to pay for a click, and Instagram will serve the ads to people it believes are most likely to click on the ad -- within an advertiser's defined parameters -- and charge the advertiser based on the number of ad impressions served, which can be cheaper than paying per click.
If an influx of direct-response advertisers doesn't drive up the cost of Instagram's ads, an influx of targeting options might. "It's a very real question and concern," Mr. Schaaf said. Typically the more targeted an ad is, the more expensive it is. And Instagram's ads will be soon be a lot more targeted.
Until now advertisers could only target their Instagram ads according to the intended audience's age, gender and country of residence. In an age where Facebook's advertisers can target ads based on things like what TV shows they likely watch, where they shop, what sports teams they like and where they work, Instagram's ad-targeting options are almost old school. No longer.
"We've moved beyond these really big brands that we've initially worked with who prioritized reach primarily. Smaller businesses have narrower audience targets, and we want to help them find those by interests or more specific geolocation demographics," Mr. Quarles said.
By the end of the year, all of the ways that a Facebook ad can be targeted will also be available for Instagram ad-targeting, including the ability for brands to use their own customer data for ad targeting as Facebook's Custom Audiences enables. And Instagram will also add the ability to target its ads based on what accounts people follow on Instagram.
The expanded targeting options will allow advertisers to sync and sequence their Facebook and Instagram campaigns. "We can now look at how to target and tell stories to specific users across platforms," Mr. Schaaf said. That means a group of people may see a brand's ad on Facebook and a follow-up ad from that same brand on Instagram, and it also means more money in Facebook Inc.'s pocket.
Instagram is also making it easier for advertisers to buy its ads. To augment its ad sales team, Instagram is going to let a number of ad-tech firms and agencies add a way to buy Instagram ads through those companies' automated ad-buying tools. Instead of dialing up a sales rep, an advertiser can set up an Instagram ad campaign using a computer program (or "programmatically" to use industry jargon). It's like booking a flight through an online travel service like Kayak as opposed to calling a travel agent, and comes with bonus features like being able to buy and measure ads across different publishers.
"At the end of the day, everyone that's a business wants to advertise on Instagram. That's what this is going to enable businesses big and small to be able to do," said Jason Stein, CEO of Laundry Service, one of the certified Facebook Marketing Partners that will help advertisers automate their Instagram ad buys. Other companies participating in the automated ad-buying tool's roll-out include Omnicom's Resolution Media, Starcom MediaVest Group's MediaVest, Salesforce, Nanigans, SocialCode, Kenshoo, Brand Networks and Unified.
If an advertiser wants to go it alone or can't afford to use one of these third-party ad-buying tools, that's okay too. By the end of the year, brands will also be able to buy Instagram ads using Facebook's self-serve ad-buying tools.
The new ad formats and buying tools should combine to mean more ads in the average Instagram stream, as Mr. Quarles acknowledged. "Over time ultimately people may see more ads," he said. However the addition of more targeting options should also mean that beyond seeing more ads, people should expect to see more relevant ads.