As advertisers pull back on Facebook, Instagram’s ad spend growth rate is booming

Face­book’s ad spend is at a stand­still, but Insta­gram’s is on the move. Here’s a look at just how much it’s up and what’s dri­ving the growth.

Face­book suf­fered a lack­lus­ter Q2, report­ing slow user growth and low­er-than-expect­ed rev­enue. The company’s poor per­for­mance result­ed in the biggest one-day dive in Amer­i­can stock mar­ket his­to­ry, with Face­book stock falling 19 per­cent, cost­ing the com­pa­ny $120 bil­lion in a sin­gle day.

Face­book CFO David Wehn­er tried to smooth over the company’s lost rev­enue and slowed user growth dur­ing Facebook’s Q2 2018 earn­ings call, warn­ing that the dis­mal results may con­tin­ue as Face­book puts its focus on Sto­ries and users con­tin­ue to take advan­tage of new pri­va­cy controls.

“There are sev­er­al fac­tors con­tribut­ing to that decel­er­a­tion. For exam­ple, we expect cur­ren­cy to be a slight head­wind in the sec­ond half ver­sus the tail­winds we have expe­ri­enced over the last sev­er­al quar­ters,” said Wehn­er. “We plan to grow and pro­mote cer­tain engag­ing expe­ri­ences like Sto­ries that cur­rent­ly have low­er lev­els of mon­e­ti­za­tion. We are also giv­ing peo­ple who use our ser­vices more choic­es around data pri­va­cy which may have an impact on our revenue.”

As Face­book hits a dry spell, Insta­gram — the less pop­u­lar app that appeals to a younger demo­graph­ic and offers fresh­er con­tent — is prov­ing to be the company’s bright spot in the short term.

Insta­gram CEO Kevin Sys­trom announced in June that the app had sur­passed the bil­lion user mark. And it’s not just user growth that’s mov­ing in the right direc­tion; Insta­gram is see­ing a sig­nif­i­cant uptick in ad dol­lars com­ing to the plat­form from adver­tis­ers who have found green­er pas­tures on Insta­gram over Facebook’s News Feed.

Advertisers are spending more on Instagram

Last month, Merkle report­ed ad spend on Insta­gram was grow­ing at four times the rate of ad spend on Face­book ads — with Insta­gram ad spend up 177 per­cent year over year dur­ing Q2 com­pared to Facebook’s 40 per­cent increase. (Of course, Face­book is the more estab­lished prop­er­ty attract­ing high­er spend over­all, so it’s no sur­prise that Instagram’s growth curve is steeper.)

Mean­while, among its clients, 4C saw an even high­er rate of ad spend growth on Insta­gram — up 204 per­cent year over year. The only oth­er social plat­form to beat Instagram’s growth per 4C’s data was LinkedIn, which saw a 212 per­cent jump in ad spend growth. Per 4C’s Q2 State of Dig­i­tal Media report, ad spend growth on all oth­er social plat­forms — Face­book, Twit­ter and Snapchat — was up less than 50 per­cent year over year, with Face­book see­ing only a 26 per­cent increase among 4C clients.

Merkle and 4C are not the only com­pa­nies report­ing major upticks in ad spend growth rates on Insta­gram, which look espe­cial­ly promis­ing com­pared to Face­book. In terms of the aver­age change in ad spend from Q1 to Q2 of this year, AdStage saw a sig­nif­i­cant gap between Insta­gram and Facebook.

Look­ing at 137 Face­book client accounts that adver­tised on Face­book and Insta­gram every month from Jan­u­ary to June 2018, AdStage reports a 31 per­cent increase in aver­age ad spend for clients that upped their Face­book ad spend while decreas­ing their Insta­gram spend — but, for the com­pa­nies that increased ad spend on Insta­gram and decreased on Face­book, there was an 84 per­cent jump in the aver­age increase in spend on Instagram.

For the third group of com­pa­nies that increased ad spend on both Insta­gram and Face­book, AdStage reports these clients upped their spend on Insta­gram in a much big­ger way — on aver­age, 161 per­cent on Insta­gram com­pared to, on aver­age, 90 per­cent on Facebook.

AdStage Facebook placement spend vs Instagram spend

“We see adver­tis­ers reach­ing high lev­els of effi­cien­cy with Face­book News Feed. Adding spend to these already opti­mized cam­paigns may only pro­vide small improve­ments,” says AdStage prod­uct data ana­lyst Josh Rodriguez. “Adver­tis­ers are find­ing that Insta­gram con­tin­ues to pro­vide increas­ing results and peak opti­miza­tion that hasn’t been reached yet. In Q2, the medi­an Insta­gram CTRs increased 19 per­cent, while the medi­an CPC decreased three percent.”

Accord­ing to Rodriguez, AdStage saw Face­book CPMs increase for three quar­ters in a row — between Q3 2017 and Q1 2018 — before they dropped 12 per­cent dur­ing Q2 of this year.

“This could be a mar­ket cor­rec­tion, a result of adver­tis­ers pulling back spend (bud­get opti­miza­tion) or shift­ing spend to Insta­gram,” says Rodriguez.

What’s driving Instagram’s growth?

AdStage vice pres­i­dent of prod­uct, Paul Wick­er, says Instagram’s com­mit­ment to build­ing out its ad plat­form is deliv­er­ing more brands and mar­keters to the app.

“The pace of inno­va­tion by the Insta­gram team has been fierce. Over the past year, we’ve seen Insta­gram roll out numer­ous improve­ments to the core Insta­gram expe­ri­ence as well as Insta­gram Sto­ries. Face­book recent­ly announced that there are more than one bil­lion Insta­gram users, and adver­tis­ers are drool­ing over all that inven­to­ry. Based on what we’re hear­ing from our cus­tomers and see­ing in the data, we expect Insta­gram inven­to­ry to con­tin­ue to grow through the rest of 2018,” says Wicker.

Bri­an Hand­ly, the CEO of Reveal Mobile, attrib­ut­es Instagram’s ad growth to its audi­ence demo­graph­ics and to a lack of con­tro­ver­sial con­tent on the plat­form. His com­pa­ny, a loca­tion-based mar­ket­ing plat­form, recent­ly sur­veyed more than 200 SMB own­ers in the US and found that, among the com­pa­nies who said they used Insta­gram adver­tis­ing (which was a sur­pris­ing­ly small group at only 34.6 per­cent of the sur­vey respon­dents), 50 per­cent who did adver­tise on the plat­form said it was the high­est pri­or­i­ty for their business.

“The trend to uti­lize bud­gets to build cam­paigns on Insta­gram has increased over the last 12 to 18 months,” says Hand­ly, “This is dri­ven by adver­tis­ers’ desire to reach a larg­er, younger audi­ence with Instagram’s grow­ing pop­u­lar­i­ty and to find alter­na­tive solu­tions to avoid the neg­a­tiv­i­ty that can some­times accom­pa­ny posts and cam­paigns on Facebook.”

Instagram’s one billion users are engaged

Hand­ly believes Insta­gram users are more recep­tive to adver­tis­ing and less like­ly to respond neg­a­tive­ly to cam­paigns. At one bil­lion month­ly active users (MAUs), Instagram’s base is less than half the size of Facebook’s 2.23 bil­lion MAUs, but its crowd is an engaged group.

Social­bak­ers, a social media man­age­ment plat­form, found evi­dence sup­port­ing Handly’s take on user engage­ment. Accord­ing to its data, Insta­gram-brand­ed pro­files are gen­er­at­ing high­er rates of user engage­ment com­pared to those on Face­book — espe­cial­ly in the fash­ion and beau­ty verticals.

Total user engagement on branded profiles across verticals

Social­bak­ers also saw ad growth on Insta­gram. Accord­ing to its data, Face­book ad accounts plac­ing ads on Insta­gram grew from approx­i­mate­ly 10 per­cent in Feb­ru­ary of 2017 to 40 per­cent in April of this year.

And let’s not forget about Story Ads

Launched just over a year and a half ago, Instagram’s Sto­ry ads have proven to be one of the company’s more pop­u­lar ad units.

Smartly.io, an online adver­tis­ing plat­form, has seen a dra­mat­ic increase in the num­ber of ad dol­lars its clients are invest­ing in Insta­gram Sto­ry ads com­pared to their over­all Insta­gram ad bud­get. In May 2017, Insta­gram Sto­ry ad bud­get rep­re­sent­ed 1.18 per­cent of over­all Insta­gram ad spend for Smartly.io clients; that num­ber jumped to 17.05 per­cent in May of this year.

One of Smartly.io’s clients, Hop­per, a trav­el plan­ning app, shift­ed 50 per­cent of its Insta­gram ad bud­get to Sto­ry ads at the end of 2017.

“It hap­pened when we real­ized installs were cheap­er on Insta­gram Sto­ries, but also that users com­ing from that place­ment were con­vert­ing almost three times bet­ter than users com­ing from the Face­book News Feed,” says Hopper’s head of user acqui­si­tion, Simon Lejeune.

Hopper’s Insta­gram Sto­ry ads yield­ed a 67 per­cent high­er rate of app installs com­pared to oth­er chan­nels and a low­er cost per impres­sions (CPM) when com­pared to Insta­gram News Feed ads and Face­book News Feed ads: CPM for Insta­gram Sto­ry ads was $6.25 com­pared to Insta­gram Feed ads at $6.96 and Face­book News Feed ads at $6.42.

Leje­une attrib­ut­es the suc­cess of Hopper’s Sto­ry ad cam­paigns to there being a “ton” of vol­ume avail­able on Insta­gram while oth­er adver­tis­ers were not as quick to take advan­tage of the ad unit.

Jose Sanchez, the head of Smartly.io’s cre­ative stu­dio, says mar­keters are drawn to the mobile-first and full-screen ad for­mat Sto­ries offer.

“It is a flex­i­ble way to do mem­o­rable, engag­ing and fun brand and direct response adver­tis­ing,” says Sanchez.

Can Instagram hold its growth pattern?

It’s not a com­plete shock to see Instagram’s ad spend grow­ing at a faster rate than Facebook’s, since Face­book has a more mature ad plat­form with less room for growth. What is inter­est­ing is the share of Face­book ad dol­lars that have been shift­ing to Instagram.

Accord­ing to Merkle’s data on adver­tis­ers run­ning both Face­book and Insta­gram cam­paigns, Insta­gram grabbed a much big­ger por­tion of the ad-share pie in Q2 com­pared to Q1.

“Look­ing at the medi­an adver­tis­er active on both Face­book and Insta­gram, Insta­gram account­ed for 23 per­cent as much spend as Face­book in Q2 2018, which is up mean­ing­ful­ly from the 9 per­cent rel­a­tive spend observed in Q1 2018,” says Andy Tay­lor, Merkle’s asso­ciate direc­tor of research. “We don’t have rel­a­tive spend fig­ures to pro­vide from fur­ther back than Q1, but it’s safe to assume that the fig­ure has been grow­ing over the past year and that we expect Insta­gram growth to con­tin­ue to out­pace that of Face­book proper.”

When asked if the ad spend shift to Insta­gram by the indus­try as a whole is con­nect­ed to ad sat­u­ra­tion with­in Facebook’s News Feed, Sanchez said he doesn’t think so.

“It’s more about adop­tion,” says Sanchez. “[Facebook’s] News Feed has been around for much longer; adopt­ing new ad for­mats and place­ments takes time as you’ll need to real­lo­cate resources to pro­duce ver­ti­cal ads. Sec­ond­ly, user adop­tion is grow­ing, so brands are becom­ing more inter­est­ed in the place­ment as Sto­ries matures.”

Leje­une says his com­pa­ny is already see­ing Insta­gram Sto­ry ads becom­ing more wide­ly adopt­ed by adver­tis­ers and pre­dicts his com­pa­ny will shift more of its ad bud­get to new place­ments like Face­book Sto­ry ads once they become avail­able and Facebook’s Dynam­ic ads for travel.

“There’s some­thing that hap­pens when a new ad place­ment appears in a fea­ture where it wasn’t present before,” says Leje­une. “Users are more respon­sive to it because it’s new and they’re not used to the ads or tired [of] them yet.”

Leje­une says the adver­tis­ers now buy­ing Sto­ry ads are not the same crowd of ear­ly adopters that took to the ad unit in the ear­ly days.

“The con­ver­sion rate from the more recent cohorts [is] get­ting clos­er to our aver­age ver­sus being excep­tion­al­ly good before,” says Lejeune.

Face­book has already start­ed test­ing ads in Sto­ries but has not offi­cial­ly rolled out Sto­ry ad units yet on its plat­form. Dur­ing Facebook’s Q2 2018 earn­ings call, COO Sheryl Sand­berg ref­er­enced the company’s recent push for Sto­ry ads and whether or not they’ll be able to deliv­er ad dollars.

“The ques­tion is, will this mon­e­tize at the same rate as News Feed? And we hon­est­ly don’t know; we’ll have to see what hap­pens. There are good rea­sons to be very opti­mistic about the mon­e­ti­za­tion,” said Sandberg.

To make Sto­ry ads as suc­cess­ful as they have been on Insta­gram, Face­book still needs to bring more users to Sto­ry con­tent. (Accord­ing to a report from TechCrunch in May, Face­book had 150 mil­lion dai­ly active Sto­ry users, while Insta­gram, at half its size, had 300 million.)

After rolling out Sto­ries to the News Feed in March of last year, Face­book began let­ting Sto­ries be added to Pages in Octo­ber. It gave the con­tent more promi­nence last month when it began test­ing a “high­light” fea­ture that allows users to save Sto­ries to their pro­files beyond the ini­tial 24-hour time period.

Mean­while, Insta­gram has yet to bring ads to IGTV — the long-form video plat­form it launched in June. Both Face­book Sto­ry ads and IGTV ads could offer a push in ad spend for either plat­form — and ulti­mate­ly, whether or not Insta­gram can hold onto its ad growth isn’t a com­peti­tor issue for Face­book, as the ad dol­lars are all end­ing up in the same place.

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