instagram business model

Decoding the Instagram Business Model. how does Instagram Make money?

Today, let’s decode the Instagram Business Model using the Business Model Canvas and learn about how Instagram makes money.

Instagram, a social media platform that started as a simple photo-sharing app, has grown exponentially into a giant in the social media landscape. The brainchild of Kevin Systrom and Mike Krieger, Instagram has evolved into a platform that connects people, brands, and influencers in a visually immersive experience. This blog post will delve deep into the business model of Instagram, applying Alexander Osterwalder’s Business Model Canvas to analyze its structure, components, and success factors. We’ll also explore the story behind Instagram, how it was founded, and what led to its meteoric rise.

The Instagram Story

In 2010, two Stanford University graduates, Kevin Systrom and Mike Krieger, set out to create a photo-sharing app that would change the way people interacted with each other online. Their original idea was a location-based social network called Burbn, which allowed users to check in at locations, share photos, and earn points. However, after noticing that the most popular feature was photo-sharing, they decided to pivot and focus solely on this aspect, giving birth to Instagram.

Instagram was launched on October 6, 2010, and quickly gained traction, amassing over one million users within just two months. This rapid success caught the attention of Facebook, who acquired the company in 2012 for a staggering $1 billion. This acquisition proved to be a strategic move, as Instagram continued to grow exponentially, reaching over one billion users by 2018 and becoming a significant revenue driver for Facebook.

The Business Model Canvas of Instagram

Alexander Osterwalder’s Business Model Canvas is a strategic tool that helps entrepreneurs, business owners, and decision-makers understand, design, and innovate their business models. The canvas consists of nine building blocks, each representing a fundamental aspect of a business:

  1. Customer Segments
  2. Value Propositions
  3. Channels
  4. Customer Relationships
  5. Revenue Streams
  6. Key Resources
  7. Key Activities
  8. Key Partnerships
  9. Cost Structure

We will now apply the Business Model Canvas to Instagram, examining each building block in detail and understanding how they work together to create a successful business model.

  1. Customer Segments

Instagram’s primary customer segments include:

  • Individual Users: These are everyday people who use Instagram to connect with friends, family, and other users. They share photos, videos, stories, and engage with others through likes, comments, and direct messages.
  • Brands: Businesses use Instagram to reach their target audience, promote products, and build brand awareness. They often collaborate with influencers to create sponsored content and run advertising campaigns.
  • Influencers: Influencers are individuals or groups with a large and engaged following on Instagram. They leverage their audience to partner with brands for sponsored content and use the platform to promote their personal brand or business.
  1. Value Propositions

Instagram offers unique value propositions for each of its customer segments:

  • For Individual Users:
    • A visually appealing and easy-to-use platform for sharing photos and videos.
    • Access to a global community, enabling users to connect with others who share their interests.
    • Discovery and exploration of new content through personalized feeds, hashtags, and location-based search.
    • A platform for self-expression and creativity through filters, effects, and various content formats like Stories and Reels.
  • For Brands:
    • Access to a large, diverse, and engaged user base, making it an ideal platform for marketing and advertising.
    • Advanced targeting options and analytics for advertising campaigns, allowing brands to reach their target audience effectively.
    • An opportunity to partner with influencers for sponsored content and endorsements, amplifying their reach to their target audience.
  • For Influencers:
    • A platform to grow their personal brand, showcase their talents, and engage with their audience.
    • Opportunities to collaborate with brands for sponsored content, creating a revenue stream.
    • Access to Instagram’s native tools, such as IGTV and Reels, which allow influencers to create diverse content and attract more followers.
  1. Channels

Instagram primarily operates as a mobile application, available on both iOS and Android devices. It also has a web version, albeit with limited functionality compared to the mobile app. Instagram uses the following channels to reach and interact with its customer segments:

  • App Stores: Instagram is downloaded and installed through Apple’s App Store and Google’s Play Store, making these platforms key channels for user acquisition.
  • Social Media: Instagram promotes itself on other social media platforms like Facebook and Twitter, using these channels to announce new features, updates, and partnerships.
  • Online Advertising: Instagram runs advertising campaigns across various online channels to increase brand awareness and acquire new users.
  • Influencer Partnerships: Instagram often partners with influencers to promote new features and engage with users, leveraging their reach and influence to drive user growth and engagement.
  1. Customer Relationships

Instagram fosters customer relationships through various means:

  • In-App Support: Instagram provides in-app help and support to address user concerns, report issues, and seek assistance.
  • Social Media Engagement: Instagram actively engages with its users on social media platforms, responding to feedback, questions, and concerns.
  • Community Guidelines: Instagram maintains a set of community guidelines to create a safe and respectful environment for users, addressing issues such as bullying, harassment, and inappropriate content.
  • Regular Updates and New Features: Instagram continually improves its platform by introducing new features, updates, and enhancements, keeping users engaged and excited about the app.
  1. Revenue Streams

Instagram generates revenue primarily through two streams:

  • Advertising: Instagram offers a range of advertising options for businesses, including sponsored posts, stories, and carousel ads. Brands can target their ads based on user demographics, interests, and behaviors, allowing for precise targeting and improved campaign performance.
  • Sponsored Content: Influencers on Instagram often partner with brands to create sponsored content. While Instagram does not directly earn revenue from these partnerships, it indirectly benefits from the increased user engagement and content creation.
  1. Key Resources

Instagram’s key resources include:

  • Technology Infrastructure: Instagram relies on a robust technology infrastructure to support its platform, ensuring seamless user experiences, content delivery, and data storage.
  • Intellectual Property: Instagram’s intellectual property includes its brand, proprietary algorithms, and software code.
  • Human Resources: Instagram’s talented team of developers, engineers, designers, and other staff play a crucial role in maintaining and improving the platform.
  • User Base: Instagram’s massive and engaged user base is one of its most valuable resources, driving the platform’s growth and success.
  1. Key Activities

Instagram’s key activities include:

  • Product Development: Continuously enhancing the platform with new features, improvements, and bug fixes to keep users engaged and attract new users.
  • Content Moderation: Ensuring that content shared on the platform adheres to community guidelines and maintaining a safe and respectful environment for users.
  • Advertising and Monetization: Developing and managing advertising solutions for brands, optimizing ad targeting and performance, and generating revenue.
  • User Acquisition and Retention: Implementing strategies to attract new users and retain existing ones, such as advertising campaigns, influencer partnerships, and app store optimization.
  1. Key Partnerships

Instagram’s key partnerships include:

  • Facebook: As a subsidiary of Facebook, Instagram benefits from the resources, technology, and user base of its parent company.
  • App Stores: Apple’s App Store and Google’s Play Store are crucial partners for distributing the Instagram app and acquiring new users.
  • Influencers: Instagram partners with influencers to promote the platform, its features, and engage with users, leveraging their reach and influence to drive user growth and engagement.
  • Brands: Instagram collaborates with brands for advertising, sponsored content, and other promotional activities, creating a mutually beneficial relationship that generates revenue and brand awareness.
  • Technology Providers: Instagram partners with various technology providers for services such as cloud computing, analytics, and content delivery to maintain and improve its platform.
  1. Cost Structure

Instagram’s primary costs include:

  • Technology Infrastructure: Expenses related to maintaining and scaling its technology infrastructure, such as server costs, data storage, and content delivery.
  • Research and Development: Costs associated with product development, new feature implementation, and platform improvements.
  • Salaries and Wages: Expenses related to human resources, including salaries, wages, and benefits for its employees.
  • Marketing and Advertising: Costs associated with marketing and advertising campaigns to promote the platform and acquire new users.
  • Content Moderation: Expenses related to content moderation, ensuring that user-generated content adheres to community guidelines and maintaining a safe environment for users.

Instagram’s business model, as analyzed through Alexander Osterwalder’s Business Model Canvas, showcases a well-rounded and robust structure that caters to the needs of its diverse customer segments. Its visually appealing platform, coupled with advanced advertising solutions and a focus on user engagement, has allowed Instagram to become one of the most popular social media platforms globally.

The founders, Kevin Systrom and Mike Krieger, tapped into the potential of a visually-oriented social media platform at the right time, adapting their original idea of Burbn into Instagram. Their pivot to focus on photo-sharing laid the foundation for the platform’s success. Facebook’s acquisition of Instagram further solidified its position in the social media landscape, providing resources and expertise to fuel its growth.

By understanding each component of Instagram’s business model, entrepreneurs and business owners can gain valuable insights into what makes a successful business model and potentially apply these learnings to their ventures. Instagram’s story is a testament to the power of innovation, adaptability, and understanding customer needs.

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