Instagram is the core engine for Facebook’s future growth

Instagram cofounder and CEO Kevin Systrom (L) and designer Diane von Furstenberg.Larry Busacca/Getty Images

• Instagram’s two founders have sensationally quit Facebook.
• When Kevin Systrom and Mike Krieger sold their company for $1 billion in 2012 to Facebook, they hadn’t even worked out how to make money.
• Now, according to analyst forecasts, Instagram is on track to bring in $8 billion in ad revenue this year.
• Studies and estimates show that Instagram is generally growing faster than the core Facebook app, and gets more engagement from users.
• Facebook can’t afford to let that growth stall.

Instagram has turned out to be the best purchase Facebook ever made.

The camera-oriented social network is, according to a Bloomberg analysis, now worth around $100 billion. Facebook bought the company for just $1 billion in 2012, marking a 100-fold return on its investment.

This is astonishing, given when Facebook bought Instagram, it only had 16 employees and its founders, Mike Krieger and Kevin Systrom, hadn’t worked out how to make money from the service.

The pair sensationally announced their departure from Facebook on Monday. But in the six years they’ve continued at Instagram post-acquisition, they have built a money-making giant.

Facebook doesn’t break out Instagram’s revenue, but it has frequently called out the app in earnings calls.

Analysts at eMarketer have estimated how much of Facebook’s revenue comes from Instagram. Here are the numbers:

• Instagram accounted for around 9% of all Facebook ad revenue in 2017: According to eMarketer, Instagram pulled in $3.64 billion of Facebook’s $40.1 billion global ad revenue.
• That will more than double and Instagram will make up around 17% of Facebook’s total ad revenue in 2018. eMarketer has predicted Instagram’s revenue to hit $8 billion.
• Instagram is growing faster than Facebook’s core app. Instagram is adding 300 million active users each month, whereas Facebook is adding 228 million to its main service.
• Advertisers see four times as much engagement on Instagram as on Facebook. Instagram is still pretty simple, making it easier for people to like and otherwise interact with brands they see.

All of this proves that Instagram is hugely important to Facebook’s future growth, not least because the brand is still comparatively untainted. Facebook’s main app has been marred by scandals around privacy, the Cambridge Analytica issue, and the spread of fake news.

And Facebook just isn’t as cool as some of its younger rivals. Instagram is loved by younger users. It is less crowded than the main Facebook app, and perceived to be a kinder social network. Meanwhile, Facebook is losing its grip on users’ attention, with time spent on its primary service down 7% year on year this month.

Tied with this, Instagram is also increasingly popular with brands, who benefit from Facebook’s sophisticated targeting capabilities and the popularity of Instagram with a hard-to-reach younger demographic.

Systrom and Krieger might be gone, but Facebook can’t afford to let the golden egg crack.