n a bid to make it easy for companies to pitch their products next to filtered Instagram pictures, the popular photo-sharing app has made its ads available to all marketers on a self-serve basis via parent Facebook’s advertising tools.
Earlier, only a select group of brands had been able to run ads on Instagram for a month or so, after the Facebook Company opened its ads API to third parties. Now, ads are available in more than 30 new countries—including Italy, Spain, Mexico, India and South Korea.
According to a report by Kenshoo, a marketing software company, the average price per ad impression on Instagram was 90 % higher than on Facebook.
Why these ads get clicks?
One of the things that has driven up the average ad price on Instagram is probably the fact that users are clicking on these new ads. Naturally, higher conversions lead to higher ad prices on a per-impression basis.
Also if you look at the cost-per-click on Instagram and Facebook, they’re much closer. The cost-per-click for an Instagram ad is about $0.42, just $0.02 higher than Facebook ads.
Factors behind higher clicks
It’s important to understand why users are clicking on these ads at a higher rate than Facebook ads in order to determine whether the rate is sustainable.
One important factor behind the higher click-through rate is that Instagram only has one ad unit – a big image with a call-to-action button.
The company is giving advertisers a lot of options as well. While individuals can only post 15 second videos on the service, advertiser videos can be 30 seconds long. Users cannot post links to outside content, but ads can include five different “calls to action,” including links to install new apps or to shop, which is already a big part of Facebook’s mobile advertising business.
Another potential reason for the higher click-through rates is the novelty of the feature. Clearly, this is an unsustainable advantage, which is impossible to measure.
The value of a digital ad really comes down to one factor: How well does it convert into sales?
With Instagram’s audience skewing younger, an average conversion through Instagram marketing is likely worth more in future sales than an average conversion on Facebook. As such, investors should expect the cost-per-click to remain slightly higher on Instagram compared to Facebook, even as it expands globally.
However, the rate at which Instagram ads convert may decline as the novelty of the ads wear off, or other geographic markets respond differently. Still, since the ad units take up the entire screen, it is likely that Instagram ads will still convert at least somewhat better than Facebook’s.
There’s one final factor that isn’t in play yet. While advertisers are able to target their ads to very specific audiences using personality and demographic data from Facebook, they can’t use data from Instagram. Instagram’s social graph is arguably more valuable for determining users’ interests – especially with regard to what they actually want to see on Instagram. Now, if Instagram enables advertisers to target users with its own interest data, it could give another boost to its conversions, and thus ad prices.
Now the big question is whether investors can expect Instagram to maintain its premium pricing.