Instagram ads and the future of brand advertising

From the very day that Facebook(s fb) acquired Instagram, there has been an impending sense of doom that our beloved moment-sharing platform would be overrun by ads, in order to meet Facebook’s insatiable need for growth and appease the Wall Street investors. Every single time I ran into Kevin Systrom (co-founder of Instagram with Mike Kreiger) I brought it up with him, and every time he assured me not to worry. But, I did worry, much like millions of people who have emotionally invested with their moments in this service.

That day finally arrived this past week and so far, and thankfully, the world didn’t end nor did the sky come crashing down. Yes, there are many who have not been shy to express their outrage. Instagram’s blog post was pretty clear about the approach the platform would take in months to follow as it rolled out advertising to its membership.

Instagram, which was acquired by Facebook for nearly a billion dollars in April 2012 is being viewed as an engine that will help keep growing Facebook’s revenues. In the second quarter of 2013, nearly 41 percent of Facebook’s revenues came from its mobile business. According to New York-based market research company, eMarketer, Facebook will have about 30 percent of the mobile display advertising in the United States.

The company is expected to see its share of global mobile internet ad revenues reach 15.8 percent this year. In 2013, eMarketer expects 18.8% of all digital ad spending in North America will go toward mobile internet ads — which include all mobile advertising on tablets, smartphones and other devices except messaging-based formats. By 2017, nearly half of all digital ad spending in North America will be on the mobile internet.

This year, 21.7 percent of all digital display ad spending will be on mobile, rising to 48.4 percent by 2017, forecasts eMarketer and much of it is going to come from newer mobile first social platforms such as Instagram.

This optimism for the future stems from the systematic failure of the online advertising business. Even though it has become a mega-billion dollar industry, the returns, at least on display advertising are pretty marginal. Doubleclick, the original banner-based online ad network says that mere 0.1 percent of display ads get a click-through. And what’s worse, it comes by beating consumers on the head with a lot of banners, as we go surfing across the internet. The only emotional response from this cookie-driven advertising assault is that of anger and hatred.

What the brand advertisers need is the rough equivalent of “carousel” — ads that bind us to the product in an effective manner, without being explicit. Instagram provides that medium — especially now that it has massive scale. It has over 150 million members worldwide and it is still one of the fastest growing mobile apps, despite competition from the likes of Snapchat. The high level of engagement and time spent on the service along with a sizable audience means that Instagram now has enough inventory to inject ads without alienating its community.

Kevin, in a conversation later, said that the company is fully invested in ensuring that the Instagram experience won’t be compromised. The company has published advertising guidelines and more importantly is taking a more hands-on approach to creative. The company is working with the likes of Adidas, Burberry, Michael Kors, General Electric(s ge), Lexus(s tm) and Levi’s amongst others for this transition into an ad-supported business model.

Systrom explained that in order for companies and their brands to be successful, they need to create Instagram-like content for the advertising campaigns. If the brands veer away from Instagram-i-ness, Systrom said they will run the risk of losing impact in a what is a very high-touch environment. The kind of ads and the number of times they will be shown to us will be key to community acceptance (or rejection) of advertising.

I couldn’t agree more with Kevin. For ads to work on Instagram, the experience has to retain its current level of fidelity — too many ads, tasteless ads, or plain vanilla banner-type advertising is most likely going to not only fail, but it will also alienate and drive people away from Instagram.

Here comes the new new creative

For decades, brand and display advertising were the bread and butter of television, newspapers and magazines. As the audiences shifted to the web, the brand dollars started to shift online as well, though much of the money was spent on mostly banner ads, a somewhat ineffective tool. However, the emergence of social sharing platforms especially on the mobile such as Tumblr, Instagram and Vine has offered brand advertisers a chance to create and reinvent brand-based advertising, and perhaps open up a whole new era of Madison Avenue creativity.

In the early days of television, as media transitioned from radio to television, network owners put radio-styled content on the air and adopted radio-styled advertising. However, it wasn’t till later when specialized ads were created for television that the industry really boomed. I am sure many of you have seen Mad Men and the shift of ad creative from print to television it exemplifies.

The Internet is going through similar transition, where “creative” is adapting to the medium and thus creating an advertising and brand experience that elicits an emotional response — the atomic unit of marketing. [Some call it native advertising, but what a god awful word — and shameful that industries — media and advertising — that deal in words and ephemera couldn’t come up with a better description.]

Data, Demographics & Demand

Burberry and Michael Kors are two brands that have been on Instagram for a long time and have developed massive followings. By sharing photos and moments, these brands have struck up a conversation with both their current customers and those who aspire to be their customers someday. Now they will be able to expand that pool of possible customers — by injecting ads in other people’s feeds.

Instagram, isn’t going to push advertising willy-nilly in our feeds. Instead, it will take into account a lot of things and build an algorithm to show us advertising. Mantra, it seems will be less is more, and smarter is better. How could that work?

Let’s continue with Burberry and Michael Kors as examples. The advertising for their brands is going to be more valuable for others who follow other fashion designers and brands. For instance, I follow many brands  — shoemakers, leather goods companies and of course, my favorite clothing brand. I often like photos of friends (and random strangers) who share photos of similar stuff, say a watch or a pen or even a notebook.

That is a lot of data and when married with my gender and availability of my location information gives Burberry a chance to show a smart ad for, say a new trench coat. I would say, in the past I would have ignored Burberry all together, but now I might give it a glimpse. If I like the ad, perhaps Burberry can create another custom advertisement, offer a discount and convert me into a paying customer.

Social Signal Bonanza

Just as Google’s ads are effective by their relevance, Instagram can replicate similar effectiveness based on social signals and other sensor data that is going to come from mobile devices. And it is not just Instagram — other platforms can benefit from similar data as well.

Tumblr which was acquired by Yahoo(s yhoo) earlier this year for a billion-odd dollars has been able to work with advertisers to create Tumblr-esque advertising campaigns (though it is hard to tell if those ads are paying off for the advertisers.) Despite early handwringing, these animated gif based ads are actually pretty fun to watch — even when you know they are ads and they advertise goods from companies you dislike. Tumblr’s follow-follower model along with “likes” data gives brand advertisers an opportunity of engagement — something that is sorely missing in today’s banner-based ad models.

Twitter, too has similar signals, though it is less of a display advertising-oriented network. It is going to be more like Google(s goog) – textual and intent driven ad-system. The company had recently allowed “direct messaging” access to people who you (or I) don’t follow — and I believe that is a step towards company offering contextual offers from brands we follow into our inboxes. Think a much, much smarter Groupon. Maybe there is still time for Google to buy them and take them off the market as Michael Arrington suggests and writes: “Twitter’s data alone would be worth tens of billions of dollars to Google’s search team.”

Peggy Olson (Elisabeth Moss) and Don Draper (Jon Hamm) – Mad Men – Season 5 – Gallery – Photo Credit: Frank Ockenfels/AMC

Mobile, Touch and Don Draper 

The fact of the matter is that the emergence on mobile and touch interfaces means a chance for creativity to finally come to the forefront on the Internet. Mobile and touch are ideal for strong creative, highly visual and immersive interactions  — from photos, to animated gifs to short form videos. And this means we need a new breed of Don Drapers and Peggy Olsons, the fictional creatives from hit television show, Mad Men.

Just as Facebook led to the emergence of agencies like Mekanism, we are going to see new creative shops emerge. The classic ad shops on Madison Avenue are still too married to the idea of old media — television screens, newspapers and magazines. Mobile screens and the diverse set of social interactions means a new kind of thinking about ads on social  media platforms like Instagram.

Some of Instagram’s most popular photographers are using hashtags and sponsorships to share their work with their followers. A few weeks ago, a handful of guys went around the US in a Mercedes-Benz and took a bunch of photos of America and occasionally included the car and hashtag in their trip.

That was the best possible brand promotion Mercedes could ask — though if there were dozens of those photos in my stream, I bet I would be thoroughly irritated. The good news is that official ads are going to come with a label — sponsored — which is a cue for us to ignore it. Like I said at the very start, the sky hasn’t fallen yet.

This essay originally appeared on Gigaom