Founded by Kevin Systrom & Mike Krieger, Instagram is one of the most popular social media platforms, with over 2 billion monthly active users worldwide. Yet, beyond its appeal lies a robust revenue model that fuels its growth and innovation.
But how does Instagram actually make money?
If you’re one of the avid followers of this social media app, continue reading. We’ll discuss every Instagram monetization strategy in this article.
How Does Instagram Make Money?
Instagram makes money through advertising, eCommerce integration, brand partnerships, and sponsored content.
Let’s learn about each of these monetization strategies in detail.
Advertisements
Photo Ads
Credits: @thursdays
Photo ads are one of the simplest and cost-effective options to advertise on Instagram feed of other users. Ideal for both a content creator and business house, these image ads are not only easy to create but also helpful at any stage of the sales funnel.
One key advantage of image ads over other Instagram ad formats is their eye-catching visuals. These ads usually consist of three elements—attractive graphics, bold product shots, and a persuasive ad copy, to capture the attention of your Instagram followers and other users.
Instagram photo ads dimensions:
- Minimum resolution: 1080 × 1080 pixels
- Ratio: 1.91:1 to 1:1
- Minimum width: 600 pixels
- Maximum height: 600 pixels
- Minimum aspect ratio: 40 × 500
- Maximum aspect ratio: 191 × 100
- Maximum file size: 30 MB
- Recommended image formats: JPG, PNG
- Primary text: 80 characters
- Headline: 27 characters
- Maximum number of hashtags: 30
Video Ads
Credits: Sprout Social
If you want to get more creative with your Instagram ads and present your product or services in “motion,” nothing beats video ads. These ads are based on video files and can be up to 60 minutes long. Plus, they are more interactive and easy to grasp.
If we go into stats, video ads get 38% more engagement than photo ads.
Instagram video ads dimensions:
- Minimum resolution: 1080 × 1080 pixels
- Recommended ratio: 4:5
- Minimum width: 500 pixels
- Maximum file size: 4 GB
- Video length: 1 second to 60 minutes
- Recommended video formats: MP4, MOV, GIF
- Primary text: 125 characters
- Headline: 27 characters
- Description: 27 characters
- Captions: Optional, but recommended
- Sound: Optional, but recommended
Carousel Ads
Credits: @thursdays
Carousel ads on Instagram are similar to those on Facebook, and are useful if you want to display multiple images or videos in one single ad. These ads work best for Instagram Shopping and a food blogger.
Instagram carousel ads dimensions:
- Minimum resolution: 1080 × 1080 pixels
- Recommended ratio: 1:1 or 4:5
- Maximum file size: 30 MB (images), 4 GB (videos)
- Recommended ad formats: JPG, PNG (images), MP4, MOV, GIF (videos)
- Video length: 1 second to 2 minutes
- Number of Carousel cards: 2 to 10
- Primary text: 80 characters
- Headline: 45 characters
- Description: 18 characters
- Landing page URL: Required
Story Ads
Credits: Hootsuite Blog
Story ads are vertical images or videos that appear at the end of an Instagram Story, and automatically disappear after 24 hours. They are fast, memorable, and fun.
These ads are your best bet to build awareness for your brand, drive traffic to your website, create familiarity with your business in your followers, and tag products for easy shopping straight from your Instagram Shop.
Instagram Story ads dimensions:
- Minimum resolution: 1080 × 1080 pixels
- Recommended ratio: 9:16
- Minimum width: 500 pixels
- Maximum file size: 4 GB
- Video length: 1 second to 60 minutes
- Recommended video formats: MP4, MOV, GIF
- Video captions: Optional, but recommended.
- Video sound: Optional, but recommended.
Reels Ads
Credits: Hootsuite Blog
Instagram Reels adverts are also gaining popularity among Instagram users. These types of ads, as their name tells, appear between Reels in the form of bite-size videos.
Unlike video ads, Reel ads can also contain images. In addition, they are more immersive and best suited for content like behind-the-scenes glimpses, how-to tutorials, product showcases, etc.
Instagram Reels ads dimensions:
- Minimum resolution: 1080 × 1080 pixels (images), 500 × 888 pixels (videos)
- Recommended ratio: 9:16 (images & videos)
- Minimum width: 500 pixels
- Maximum file size: 30 MB (images), 4 GB (videos)
- Recommended image formats: JPG, PNG (images), MP4, MOV (videos)
- Primary text: 72 characters (images & videos)
Note: Head over to the Meta for Business ads guide page to learn about each type of Instagram ads in detail and create your first ad.
eCommerce Integration
Shopping Features
Apart from advertising, Instagram also makes money through its shopping features. Launched in 2020, the Instagram Shop enabled brands to set up virtual shops on the social media platform and connect with its vast audience.
Instagram also earned itself a powerful revenue stream by the integration of influencer marketing and eCommerce, letting users shop products endorsed by their favorite influencers with a few simple taps.
Checkout Features
While the consumers don’t need to pay any fees to buy from their favorite Instagram Shop, the merchants do. The platform charges a small “selling fee” from sellers—to fund the entire process that streamlines checkout, as well as other transaction-related expenses.
This checkout fee, which is $0.40 for shipments of $8.00 or less and 5% for shipments over $8.00, is applicable on every sale made through the app, and thus, adds to Instagram’s revenue.
Brand Partnerships and Sponsored Content
Influencer Collaborations
Influencer collaborations on Instagram allow the social media platform to benefit monetarily from every content creator, influencer, and brand. Here again, the social media giant charges a small fee to keep itself running.
Sponsored Posts
Instagram follows the affiliate business model, or affiliate marketing, generating revenue from affiliates. It allows businesses to promote their products or services through “sponsored posts,” and earn a commission in exchange. For this, the company provides a dedicated affiliate link.
This allows both the affiliates and the company to benefit.
Subscription Services and Exclusive Content
The company also earns through Instagram Subscription, a unique subscription-based service. It lets Instagram users access exclusive content of their favorite content creators by paying a subscription fee.
This charge is determined by the content creators and Instagram deducts applicable taxes and other fees at its end.
Finally, the recent decision of this social media app to charge for its blue tick verification service has also led to significant increase in its revenue. However, being Instagram followers, you might not get the same level of authenticity or credibility in influencer accounts, now that anyone can get verified for a fee.
Revenue & Valuation of Instagram
Instagram’s revenue has seen an exponential growth year-on-year (YoY). It reported a net revenue of $60.3B in 2023, up by 16.2% in 2022. Going by reports, the social media giant’s revenue from advertising alone is expected to hit $59.6B in 2024.
The brand value of Instagram, as its revenue, has skyrocketed with its expanding community. As of 2023, the valuation of Instagram stands at $47.4B. Its net worth could have been over $100B, had it been a stand-alone company.
History of Instagram
Kevin Systrom & Mike Krieger are the founders of Instagram. Back in 2009, he worked at NextStop after graduating from Stanford University. Since he had no prior experience in programming, Kevin used to learn coding at night and during weekends. He eventually created Burbn, a location-based check-in app.
In March 2010, Kevin met two venture capitalists from Baseline Ventures and Andreessen Horowitz at a party of Hunch, who later invested $500,000 in Burbn.
This prompted Kevin to leave his job and devote more time to the venture. He started building his team for this new journey, and onboarded 25-year-old Mike Krieger. Another Stanford graduate, Mike brought his UX designing experience from Meebo.
Kevin, Mike, and their team studied numerous other social media platforms popular to identify the voids in Burbn and fill them. The Hipstamatic app caught their eyes, but its social media sharing capabilities didn’t impress anyone much. They also checked out Facebook and Telegram, among others.
Finally, the team started pivoting Burbn to a photo-sharing platform, and rebranded it to Instagram. Features like instant posting, commenting, liking, and sharing were added, similar to their rival, Facebook.
After eight months of fine tuning, testing, and improvisations, Kevin and Mike officially launched the Instagram app on Apple’s App Store. Around 25,000 users started to use Instagram the same day itself, and this number jumped to 100,000 in the following week.
In 2012, Mark Zuckerberg, founder of Facebook, acquired Instagram for a whopping $1B, citing it a “threat.”
Top Competitors of Instagram
Instagram faces stiff competition from the following five social media platforms:
Snapchat
Snapchat, originally called “Picaboo,” entered the social media networking space in 2011. It’s based on a unique concept where you can publish raw images and short videos without worries, knowing they would disappear within 24 hours of posting.
The platform has over 800M monthly active users, and has Gen Z as its target audience base, like Instagram.
TikTok
TikTok, contrary to other social media platforms, only focuses on short-form videos, Stories, and Lives. It doesn’t allow static posts, making it a hit among budding content creators.
It comes with its unique “For You Page,” similar to Instagram’s Explore page, where you’re only served content that you’re truly interested in or might be.
X
Elon Musk acquired Twitter in 2022 for $44B and later rebranded it to X. It’s the fifth-most visited website in the world and lets users share a myriad of content with their followers.
What’s making content creators move to X from other platforms like Facebook and Instagram is its higher organic traffic when compared to them.
Pinterest is a great platform-cum search engine for business marketing. It has a completely different user base than Instagram, with the consumers using it to save personal ideas, exclusive content, and inspiration.
Two key benefits of using Pinterest are access to in-depth audience insights and trends, plus, higher purchase completion rate than Instagram.
Tumblr
Tumblr is a popular New York-based microblogging platform with nearly 200M active users globally. It primarily focuses on long-form blogs, as well as other text posts, images, videos, quotes, links, and audio clips.
Conclusion
Instagram’s revenue model relies heavily on advertising. According to Business Insider, the photo and video app generated $32.4B in ad revenue—that’s 27% of Meta’s overall revenue in 2021.
This is followed by sponsored posts, eCommerce integration, and strategic brand partnerships, making it a lucrative platform to monetize globally.
