Grow First, Ads Later: Facebook’s Strategy For Desktop, Mobile, And Now Instagram

When you’re spreading like wildfire, why douse the flames to make a few bucks? Facebook’s willingness to wait on advertising helped its site and mobile apps grow massive, and now it’s applying the same strategy to Instagram. Wall Street is clamoring for Facebook to earn back the $700+ million it spent buying the photo app, but Mark Zuckerberg refuses to trade tomorrow’s dollars for today’s dimes.

It took Facebook years to get serious about ads. That’s because it was serious about growth and the user experience from day one. Facebook’s first ads were actually called “flyers” and promoted on-campus events. They fit right in rather than detracting from the value of the social network. When Facebook started selling to more traditional advertisers, the units it offered were tiny, and relegated to the sidebar so organic content could stay front and center. Compared to the loud flash banners and pop-ups found elsewhere, Facebook seemed like a sanctuary. The strategy helped it quickly grow to hundreds of millions of users.

Facebook launched its iPhone app in July 2008. For over three years, not a single ad was shown. The world was starting to go mobile, and Facebook wanted to welcome it with open arms, not greed. In 2010 and 2011, Facebook’s smartphone apps were growing at a stunning pace to become the most popular things on mobile. Clogging them with ads could have stunted growth when it had the most momentum.

By the end of 2011, both Facebook for iOS and Android had over 57 million daily users, and almost twice as many monthly users. There was no guilt in telling a friend to go download the apps. They weren’t necessarily the fastest thanks to their reliance on HTML5, but they didn’t waste limited real estate on squeezing money out of advertisers.

It wasn’t until early 2012 that Facebook finally announced it would start showing ads on mobile and the desktop news feed. By then an overwhelming percentage of people in the developed world were already using its site and smartphone apps. User growth in its most important markets like the US, UK, and Canada had slowed to a trickle. Growth was predominantly coming from the developing world where people use Facebook’s feature phone apps.

When it finally started showing ads on the web feed, iOS, and Android, Facebook had a lot less to lose. It didn’t need its apps to be as viral and add as many users in the first-world any more. It just needed to make sure not to drive people away from them. Ads started appearing, slowly at first as Facebook gauged reactions, and faster as it saw people weren’t browsing the feed significantly less because there were a few ads in the middle.

1361927701-Instagram copy

Long story long, the strategy has worked. Facebook could surely have an extra billion in the bank if it monetized earlier. But it might have sacrificed millions of users and positive connotation to get that money. Still, it’s been a bit of a surprise that a year after acquiring Instagram, Facebook said on this week’s earnings call that there’s no plan yet to show ads on the photo app. That’s not for lack of demand, Zuckerberg said:

“Instagram, they’re really doing well and growing really quickly, and I think that that is the right focus for them. And they have this opportunity to capture and basically build off this huge community and I think that that should be 100% of the focus right now. I am really optimistic about the business opportunity there, too. You already have a lot of brand from folks who advertise with Facebook putting content into Instagram, getting huge engagement rates. So people are coming to us and asking for ways to make that even richer and it’s something that we’re thinking about. But right now, I think that – I’m just really proud of the team and excited about how quickly they’re growing. They’re growing a lot faster now and were faster to get to 100 million than Facebook even.”

Perhaps when Facebook’s given Instagram enough time to grow, and it figures out how it wants to the advertising experience to work, we’ll see it monetize the acquisition. It has plenty of options for how.

Instagram could show glossy photo brand ads in the feed, but might try to avoid forcing users to click out to a browser to follow the ads. That’s why I’d expect Instagram to start with ads that help businesses get more followers and keep users bouncing around the app.

Businesses might pay to get the photos they post to their accounts showed to people who don’t currently follow them. A social version of these follow ads might target friends of or people who follow people who follow a brand. Yes, that’s a mouthful. Another option would be allowing brands to amplify the reach of user posts that tag them using Instagram’s new photo tagging feature. If I tagged Nike in a photo of my shoes, Nike might pay to show that post at the top of my friends’ feeds or show it again a week after I originally posted it in hopes of attracting more followers.

Instagram could also try Suggested Accounts that ask people to follow certain brands similar to Twitter’s Promoted Accounts ad unit. App install ads which let developers pay to get their apps shown in the feed and downloaded have become Facebook’s new darling, so they could make their way to Instagram too.

Facebook and Instagram can afford this growth > ads strategy because its thinking long-term. Not long-term like Google with its moonshots, but Facebook is confident they’ll be dominant in their fields for at least a few years. Their large userbases and network effects luckily afford them a bit of a moat. It’s still a gamble, though. There’s always the risk that by the time Instagram starts advertising, something new in the media capture space will be stealing the attention of its users. It’s a tightrope to walk, but one that leads to a healthy community, quality experience, and a sustainable business model.

[Image Credits: Metrowest, MacStories]