How Instagram Is Finally Taking a Page From Facebook

NEW YORK (TheStreet) -- No longer will Instagrammers get lost on the Web when trying to purchase their favorite store's latest post after the social-networking company announced on Tuesday a three-part plan for increasing its advertising systems.

The change will help align Instagram, which has in excess of 200 million users daily, more closely with its parent company Facebook's (FB) advertising model.

In the first part of plan, users will now be able to "sign up," "shop now" or "install now" from the Instagram app. The "action-oriented" ads will direct users to specific sections of advertisers' mobile sites or take them right to Google's (GOOG) Google Play or Apple's (APPL) App Store, according to an Instagram spokesperson. Once users are done interacting with the advertisement, they will be returned to the Instagram app.

The additional options follow a recent trend in Instagram's advertising program, which launched one and a half years ago. In May, the company began letting advertisers place clickable links, or "learn more" buttons, on photos.

"Our goal is for Instagram to excel even more at bringing together people and businesses, and to become the leading mobile ad platform," the Instagram spokesperson said by email. "To achieve those goals, we must build ad experiences that satisfy a variety of advertising objectives."

Direct-response testing will begin in Spain, where a diverse set of clients are already knowledgeable about mobile-app advertising, according to the spokesperson, who added that testing is expected to expand outside that country in the latter part of the year.

Instagram is also expanding its ad services to integrate additional components of Facebook's targeting engine. Instead of targeting ads based just on age, location and gender, Instagram will now allow for focusing them according to additional demographic elements and interests as well.

Plus the advertising rollout will become more accessible. An Instagram Ads API (or application programming interface) will be initially offered to Facebook Marketing Partners and then all advertisers by the end of the year.
 
"Ultimately we want to introduce Facebook's auction model to Instagram, allowing any kind of business to place ads on Instagram," the company spokesperson said via email.

Capitalizing on Instagram's users, who spend an estimated 21 minutes a day on the app, could prove valuable to many advertisers. Thus, ad prices will "continue to reflect the value we deliver to advertisers at any given time," the company spokesperson said.

Transitioning to an advertising model that's like the one used in the Facebook platform could prove promising for the social media company. Analysts have been optimistic about Facebook's advertising model for some time, especially since the company receives a majority of its ad revenue from mobile ad sales.

"The company has made an impressive transition away from the desktop with 69% of its ad revenue now coming from mobile," wrote Barclays analysts in a March 29 report. "It continues to demonstrate a good understanding of the major online trends and is well positioned to capitalize on them." The report also said Facebook's grasp of mobile audiences will help it continue to have strong revenue in the coming years.

In its first quarter earnings for 2015, Facebook reported revenue of $3.54 billion, a 42% rise from the same quarter a year earlier. Revenue from advertising totaled $3.32 billion, with 73% of it derived directly from mobile advertising.

JPMorgan analysts have also expressed optimism about the company's advertising business: A May 15 report said that more than 20% of U.S. users' mobile time is devoted to advertisements. The report also said the company's targeting efforts played a part in its advertising success. These targeting efforts are the same ones Instagram will now try to implement.

The price of Facebook shares at Wednesday's market close was $82.44, having risen 2.5% for the day.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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