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How Instagram Works: Insights about Photo Sharing Apps Business and Revenue Model

16670 Views | 2 min | Published On: December 3, 2018 Last Updated: December 7, 2022

Launched by Kevin Systrom and Mike Krieger in 2010, Instagram is one of the most popular social networks worldwide. Since its launch, it has developed rapidly, trampling competitors like Twitter and Snapchat along its way by evolving fast and embracing new trends. The application has seen exponential growth, from 1 million users amid the initial two months to 1 billion users by June 2018. With such a big user base, most of the people are left with the question, how Instagram makes money?.

Today, the Facebook-owned organization is the go-to application for individuals who like communication through visual means, on their phones. When Facebook purchased this mobile photo-sharing application Instagram for around $1 billion in cash and stock in April 2012, it was two years old and had no revenue. At present, the organization is estimated to be worth more than $100 Billion, according to data compiled by Bloomberg.

So, what is Instagram’s exponential development trajectory? How Instagram Business Model managed to change it to an advertising platform from a promising product? That remains to be seen. Here’s a glance at how Instagram makes money and has within eight years transformed as one of Facebook’s biggest cash cows.

Instagram Stats and Facts: Funding and Major milestones

Launch Date: October 6, 2010
Founders: Kevin Systrom and Mike Krieger
Funding received by Instagram: $57.5M over 3 rounds
Company Valuation: More than $100 billion
Active Users: 1 Billion
Number of Daily App Users: 500 million
Best Record: Got 1 million downloads within two months after release

successful timeline of Instagram

Also Read: How Tinder Works: Insights About Top Dating App’s Business And Revenue Model

How Instagram Makes Money: Instagram Revenue Model

Instagram marketing solution was launched in 2013, and after that, there is no stopping back. By 2015, Instagram marketing started to get steam and managed to get $0.63 billion in revenue. The following year it tripled this number, coming to $1.86 billion. In 2017, the organization figured out how to double the earlier year number coming to $3.64 billion. The 2018 Instagram revenue forecast guarantees to double it once more, hopefully reaching $6.84 billion.

Instagram Revenue Model

But how does it manage to earn that much money? Let’s find out:

1. Advertisements – Instagram’s Ads Business Model

Instagram makes money via advertising, much the same as Facebook. The organization is driving its revenues by giving businesses not only an alternative to increase brand awareness but to also, increase offline sales and website visits.

Instagram ad revenue comes through –

Instagram Marketing Strategy

Picture Ads

Instagram enables organizations to market their products by convincing pictures. These Photographs can either be in landscape or square format. They additionally have the option to incorporate calls to take action that leads to the proper page on the business’ site.

Video Ads

The Instagram business model also enables marketers to advertise their products by means of videos. You can get the same visually appealing quality as photo ads, with the additional power of sight, motion, and sound. These additionally incorporate similar calls to the action button.

Carousel Ads

Instagram Ads

These types of ads allow users to swipe through a list of photos or videos, with a call-to-action button to associate them directly to the promoter’s website. These sorts of Instagram posts are an ideal fit for brands that need to show the versatility of their content.


Instagram Stories Ads are full-screen advertisements that appear to users in between Stories they see from individuals they follow. The call-to-action in these advertisements appears as a swipe-up feature that takes users directly to the site of the advertiser.

2. Facebook Advert

The Instagram revenue model is associated with that of Facebook’s. A promoter can put an advertisement on Instagram through Facebook even if he doesn’t have an Instagram account. Instagram, because of its expanding user-base, is a basic component of Facebook’s revenue model.

3. It Sells User’s Data

Yes, rumors are that Instagram sells user’s data because their terms and conditions use various variations to this:

Terms of use, express this “you concur that a business or other entity may pay us to show your username, resemblance, photographs and/or potential moves you make, in association with paid or sponsored content or promotions.”

4. Instagram Shopping

Recently, Instagram added a new revenue stream called Shopping. It is a set of features that let buyers shop directly from the Instagram application. Instagram allows advertisers to build shops on the platform by letting them integrate product catalog with their business accounts. It let advertisers:

  • Showcase all the product in the profile section so that customers can browse products without leaving the app
  • Tag products in the posts so that users can see product details and price with a single tap
  • Sell products directly from the app by adding a “Shop Now” button to end the purchase right in the app
  • Promote products using Instagram shopping ads that show tagged products for users to buy either on Instagram itself or other platforms.

Why Facebook Acquired Instagram?

Instagram’s plus point and the first reason behind why Facebook has acquired it, is its absolutely committed and consistently developing mobile user base. As of April 2017, the reports have suggested that more than 600 million day by day active users are there on the site.

It is no big surprise that mobile has been a rising fragment of Facebook’s publicizing, showing 84% of ad revenues in 2016. Hence promoting on Instagram – one of the best photo social apps – has turned out to be the best in class and will keep on doing as such.

Also Read: How Airbnb Works: On Demand Vacation Rental App Business Model Explained

How Instagram Works: Business Model Canvas of Instagram

Instagram is an online social networking application that enables users to share photographs and videos from their lives. You can apply filters, add captions, change settings, engage with others, creep, explore and do so, so much more on Instagram — you need to know what you’re doing so that you don’t get overwhelmed!

The Instagram business model is the same since its launch – a free picture sharing mobile application, however, the manner in which it uses its calculation to monetize customers’ attention has developed after some time. Instagram lets users create a profile to interface with others and focuses on building a community. 

Here is what business model canvas of Instagram looks like:

Instagram Business Model Canvas- learn how Instagram makes money

1) The Instagram business model empowers individuals to share, explore, and speak with one another on mobile phones. It targets each and every individual who has a smartphone (Customer Segment).

2) It is primarily a photo-editing app (main functionality) with a large number of colorful filters in place.

3) The innovative platform draws in users in an exceptionally proficient manner by utilizing simple and easy to use (value propositions) mediums like pictures, videos, stories, Boomerangs, superzooms, live videos and some more.

4) Because of its increasing popularity, it gives businesses from all over the world access to a large and active client base (value propositions).

5) By sorting the content algorithmically, it shows personalized content to each user depending upon the user’s search history, likes, and comments.

6) It likewise shows advertisements based on the user’s interest and Instagram marketing strategy helps businesses in advertising better.

7) It provides various cool and engaging features like filters, Geotags, Hashtags, DM, Push notifications, live video streaming and many more.

8) The app provides advertisers with different methods to advertise their content (Value Proposition).

9) It helps individuals showcase their talent and build strong customer relationships.

10) Instagram marketing strategies are used by restaurants, hotels, hospitals and the entertainment industry for promotions. Its key resources are its fast-growing user base and hosted photos.

11) It brings traffic to the advertiser’s websites by an active hyperlink in the biography or via paid advertisement.

12) Instagram drives its revenue from Advertisements and user data selling.

5 Key Takeaways from Instagram Business Model

So, that was all about the business and revenue model of instagram. It is a great example of how to turn a product into a money-making machine. Here is what budding entrepreneurs should learn from the Business Model of Instagram.

1. Customer-First Approach is Crucial

Instagram business model follows a customer-first approach by offering easy to understand and engaging features in the app. This is the reason as a result of which its user base is developing with pace. It was not the very first photo-sharing app, not 2nd and not even the 10th. But what actually made it stand out was that it is easy to use, and provides real value to photo lovers and photographers.

2. No Engagement, No Revenue

Photo-sharing applications don’t have any clear revenue model. A significant share of their revenues is contributed by advertisements and e-commerce. This implies that engagement is the revenue for photo-sharing apps and that is how Instagram makes money

3. Always Take Baby Steps to Grow Remarkably

The Instagram business model says that you should always plan your business with the most fundamental features. Afterward, you can gradually enrich your app with cutting-edge features. This way you can analyze and test your market to make implementations. Also, the approach will help you to grow remarkably.

4. Set Your USPs

While making a social photo-sharing app like Instagram, your front-of-the-mind focus should always be your Unique Selling Point. Know what is the objective that you need to accomplish with your application. This has to be figured out before beginning with the development procedure to be crystal clear in your app development approach.

5. Make Your Own Network

Instagram’s strategy was not simply to use existing social networks for sharing, but to make its own, supplemental network. Instagram’s connections complement Facebook’s (the king of social media) connection exceptionally well, and this is the principal reason behind the gigantic valuation. Also, building a graph of clients was a threat to Facebook. This also definitely factored into Facebook’s decision of acquiring it.

Wrapping Up

In the same way as other big names in social media, Instagram began as a fun idea without a clear way to earn money. Like its parent organization, Facebook, advertising has turned into the key to its monetization. Since it is a photo-sharing application, it is a natural platform for branded promotions. Numerous famous organizations, whose brand visuals are promptly recognizable, for example, Nike, Lewis, and Puma have excitedly embraced the platform.

There’s no uncertainty in the fact that the Instagram business model has brought a revolution not just as a social photo-sharing app but as a business model where businesses reach out to serve users by advertising their services or products in remarkable ways. Given its above-market user development, accomplishment with advertisers, and effective transition to a platform, it beyond any doubt looks like Instagram is positioned to win mobile advertising which answers how Instagram makes money

A lot of new mobile-preneurs have already made their applications like Instagram and numerous others have made little iterations to launch new businesses in different industry verticals.

Would you like to make an App like Instagram? Connect with us and know how we can enable you to develop the next big thing!

Frequently Asked Questions(FAQs)

Q 1.How Does Instagram Make Money When it is Free to Use?

Instagram is a free to download application but it makes money through advertising. It lets advertisers market their business using different types of ads as mentioned above and provides them the exposure they need. In return, advertisers pay Instagram. Another revenue stream of Instagram is shopping.

Q 2.How Much Money Does Instagram Make?

Instagram generated $24 billion in revenue in 2020 and $17.7 billion in 2019. Since its launch, Instagram revenue has just increased with every passing year. Recently, it added another revenue stream called Shopping. It allows customers to shop directly from Instagram and charge seller fees in return.

Q 3.How Much Money Does it Cost to Build an App like Instagram?

The cost to develop an app like Instagram depends on features you want to add in it. For example, if you want to create an Instagram clone, it would cost you a bit higher. 

However, if your idea is unique and you want to develop an app similar to Instagram but with different features, you can develop an MVP by spending less. Check out this blog to get an estimate on how much Instagram-like app development will cost you.

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