How Does Instagram Make Money? Business Model Explained

In the rapidly evolving digital landscape, Instagram has carved a unique niche. Since its inception in 2010, Instagram has emerged as a transformative force in the social media world, revolutionizing the way we share and interact with visual content. 

While Instagram provides free services to its users, it generates significant revenue primarily through advertising. Recent data suggests that its estimated worth is over $100 billion.

This article will delve into Instagram’s business model, its target audience, and its revenue generation strategies.

The Role of Instagram in Social Media

Instagram, a photo and video sharing social networking platform owned by Facebook, has seen rapid growth since its inception. The platform boasts an impressive 1 billion monthly and 500 million daily active users, primarily targeting younger demographics, with a significant user base between the ages of 18 and 34.

While Instagram is a social networking platform, its influence extends beyond mere social connections. For individual users, Instagram has emerged as a platform for self-expression and a significant driver of pop culture trends.

For businesses, Instagram offers a powerful marketing tool, enabling companies to build brand awareness, engage with customers, and even sell products directly through the platform.

The Evolution of Instagram’s Business Strategy

Instagram’s business strategy is unique and continuously evolving. From its early days as a simple, free image-sharing mobile application, Instagram has developed sophisticated algorithms to monetize user attention.

The platform offers a range of features, such as photo and video upload, filters, followers, geotagging, self-disappearing stories, live stories, and IGTV, each designed to engage users and keep them on the app for longer. On average, users spend 26 minutes per day on the Instagram app.

Advertising: The Cornerstone of Instagram’s Revenue Model

Advertising is the principal revenue generator for Instagram. The platform offers sophisticated advertising solutions, allowing brands to target users based on their interests and behaviors.

Instagram offers a wide range of ad formats, including Story Ads, Photo Ads, Video Ads, Carousel Ads, Collection Ads, Ads in Explore, and IGTV Ads. Each ad format serves a unique purpose and offers different engagement opportunities for advertisers.

According to Business of Apps, the cost per click (CPC) for Instagram feed ads is around $0.60, and for Stories, it is $0.50. The cost per mille (CPM), or the cost per thousand impressions, for Instagram feed ads is $1.65, and for Stories, it is around $0.90. With over 2 million advertisers using Instagram each month, these small costs quickly accumulate into substantial revenue.

How Different Ad Formats Work

Each of Instagram’s ad formats offers unique benefits for advertisers:

  • Story Ads: These ads appear between user stories, enabling brands to interact with users through various engagement features such as website visits, polls, and feedback forms.
  • Photo and Video Ads: These ads appear in the regular feed and look like standard posts but include a sponsored tag and a call to action button.
  • Carousel Ads: These ads allow users to swipe through additional photos or videos in a single ad, making them ideal for showcasing multiple products or telling a brand story.
  • Collection Ads: These ads display a collection of products below a cover image or video, offering a seamless browsing experience that leads users from inspiration to purchase.
  • Ads in Explore: These ads appear on Instagram’s explore page, a source of real-time content curation that presents different posts for every user based on their likes and interests.
  • IGTV Ads: These ads appear on Instagram’s long-form video platform, IGTV, enabling brands to reach users who are actively engaged in viewing longer content.

Instagram Shopping: An Emerging Revenue Stream

Instagram Shopping is another key avenue for Instagram’s revenue generation. This feature allows businesses to integrate their product catalog directly into their Instagram profile. With Instagram Shopping, businesses can add a Shop tab within their profile, tag Shop products in their posts and stories, and even run Shopping ads.

Instagram Shopping offers a seamless shopping experience to users, enabling them to view product images, read descriptions, browse similar products, and make purchases, all within the Instagram app. Instagram monetizes this feature in two ways:

  • The Checkout Fees: When a user makes a purchase within the Instagram app, Instagram charges a fee from the sellers for this service.
  • Instagram Shopping Ads: These are extensions to traditional ads, but with a tagged product that can be purchased either on Instagram or on other channels.

Instagram’s Competitive Advantage and Future Prospects

Instagram’s blend of visual storytelling and influencer marketing has made it a preferred platform for users and brands alike. Around 70% of shopping enthusiasts turn to Instagram for product discovery, and 66% of people use Instagram specifically to interact with brands.

The introduction of features like IGTV and Instagram Shopping has increased user engagement and opened up new revenue streams for Instagram. By focusing on user-generated content and enhancing the in-app shopping experience, Instagram is not just following the trends, but also shaping the future of social media and e-commerce.

Moreover, Instagram’s robust network of influencers adds to its competitive advantage. Influencers are popular users who have a significant following and can sway their followers’ preferences and purchasing decisions. The rise of influencer marketing on Instagram has created a network effect that would be hard for any competitor to replicate.


Instagram’s monetization strategy is a testament to the platform’s constant innovation and adaptation to changing user behaviors and market trends. Despite being a free platform for users, Instagram has successfully monetized user attention through sophisticated advertising and shopping features.

As Instagram continues to evolve and introduce new features, it’s set to remain a major player in the social media landscape. Its unique blend of visual content sharing, influencer marketing, and seamless shopping experiences positions it well for future growth and revenue generation. 

Leave a Comment