Instagram weighs the pros and cons of ecommerce
According to a recent interview with Instagram, the ad business is still its primary focus — but Instagram will increasingly push users to shop on the app. Instagram’s focus will be on scaling the ecommerce business. Instagram is pushing ecommerce because the market opportunity is far greater than marketing. In 2018, US retail ecommerce sales totaled $513.6bn, up 14.2% year-on-year (US Census estimates). US ad sales are about half that, totaling $207bn in 2018, up 6.9% YoY (Magna estimates). Ecommerce can boost the ad business, and vice versa, in a virtuous cycle. As more users make in-app purchases, brands and businesses of all sizes are likely to purchase more ads on the app. The hope will be to direct users to the Instagram profiles of brands, which will increasingly act like virtual storefronts where users can buy products. Instagram now has 25 million active businesses, and half of them do not list a website, meaning they are native to Instagram. Instagram sees its biggest opportunity in product discovery — which can “broaden the spectrum” of what a user is looking for. More than 4 in 5 Instagram users say the app helps them to make purchasing decisions, with 83% saying it helps them discover new products or services (Facebook IQ/Ipsos).
However, if Instagram can make good on its growth vision it will need to ensure that it puts user needs first. That becomes particularly crucial as the app rapidly scales the number of users, businesses, advertisers, and content that exist on the platform. If Instagram’s ecommerce push is too heavy-handed, users might become frustrated with constant nudges toward spending money. Instagram could risk alienating people who do not want to use the platform to shop, but just want to share or experience content. Also Instagram could face a more fundamental challenge around user primacy: a rising tide of extremist content on the platform. That issue is familiar for Facebook, which knows how persistent and harmful such content can be. Extremist content could harm Instagram’s reputation for being a clean, fun place for users to engage with content, which, in turn, could give brands pause when considering whether to commit to Instagram as both an advertising and commerce platform (according to an article by Taylor Lorenz in The Atlantic).
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