Here's Another Way Facebook Can Monetize Instagram

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Facebook's (NASDAQ: FB) native app may be its bread and butter. But the social network's photo- and video-sharing app, Instagram, is growing in importance to the tech giant. The app reached 1 billion monthly active users in June. This compares to Facebook's 2.23 billion monthly active users. Indeed, Instagram is big enough now that Facebook even branched Instagram off into another stand-alone app for watching long-form Instagram videos: IGTV.

Facebook CFO Dave Wehner acknowledged Instagram's rising importance in the company's second-quarter earnings call, saying, "Instagram is growing more quickly and making an increasing contribution to growth."

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But there are still more ways for Facebook to capitalize on Instagram's momentum -- and the social network showed off one way it is building the photo and video app into a bigger business this week.

Betting big on e-commerce

In June, Instagram debuted the ability to shop within Instagram Stories. But the feature was only available for select brands. Apparently, the test went well. Instagram announced this week it is rolling out shopping in Stories to businesses in 46 countries.

"Now when you're watching behind-the-scenes Stories from your favorite brands and see something you love, you can quickly tap on a product to learn more," Instagram said about the feature.

With a captive audience of 400 million daily active users within Instagram Stories, the new feature will likely be used by millions of users.

And Instagram didn't stop there. The company also rolled out a dedicated shopping channel within its Explore tab that will offer personalized product recommendations.

If you have any doubt about Instagram users' willingness to shop within the app, think again. The company said 90 million accounts tap for product details on shopping posts on Instagram every month.

Instagram's efforts to bolster its e-commerce efforts come ahead of a rumored stand-alone Instagram app for shopping.

Instagram: A big opportunity

Instagram represents a growth area for Facebook for several reasons.

First of all, users are growing rapidly. Instagram went from 800 million monthly active users in September 2017 to 1 billion users in June. In addition, Instagram's daily active users went from 400 million in February 2017 to 500 million in June.

Then there's the wildly popular Stories browsing format within Instagram, which attracts the attention of 400 million users every day. As an immersive and engaging format, Stories is a major growth opportunity for Facebook since ads fit in seamlessly with content. Further, Instagram Stories is gaining momentum with users rapidly, as it only took less than eight months for Instagram Stories to go from 300 million daily active users to 400 million.

Shopping within Stories and Instagram's Explore tab is a big step to turning the app into a major business for Facebook -- but it's just one of many more steps to come.

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has a disclosure policy.