Image source: Instagram.
Continue Reading Below
Advertisers can't get enough of Instagram, according to ad agency MEC Global. Speaking on Nomura's fourth-quarter Internet advertising trends conference call, the agency's head of social media for North America Noah Mallin said his clients are spending "something like 11,000%" more on Instagram ads in the fourth quarter compared to the third quarter.
That's some news that will make Facebook investors smile. Of course, the sudden increase in Instagram ad spend isn't a complete surprise, considering Instagram just opened its ads API this summer. But the amount of growth and where it's coming from should please Facebook investors and put some fear into Twitter investors.
How much are they spending?That growth rate doesn't give investors much to go on. 11,000% more than $1 is just $110. Luckily, Mallin provided a few more details. He expects his clients to spend about 2% of their Facebook budgets in the fourth quarter on Instagram ads. For reference, analysts are currently expecting Facebook to generate around $5 billion in ad revenue this quarter -- 2% is $100 million.
$100 million might not sound like much compared to the amount Facebook brings in, but it's more ad revenue than Twitter made in all of 2011 -- the first full year of its promoted products. 2011 also happens to be the year when Twitter was the same age Instagram is now.
What's more, Mallin says, "We're not seeing cannibalization." So, that 2% of Facebook ad spend is all incremental to Facebook's revenue. He also indicated that Facebook's ability to cross-target users on both Instagram and Facebook help feed ad spend on both platforms.
In other words, Instagram's growth isn't coming from Facebook. If anything, it's fueling more spending on the parent company's platform.
Why this is bad news for TwitterTwitter is growing its ad revenue in spite of its lack of user growth. This comes from increasing the number of businesses bidding on ads for its platform, the amount each business is spending, and how many ads Twitter shows to its users.
Now that Instagram has opened its ads API, it could stop more businesses from trying Twitter and opting to use Instagram instead. What's more, it will limit the amount any advertiser will spend on Twitter. The only lever Twitter can exercise control over is its ad load, which provides limited growth (since you can't have a timeline full of ads).
The immediate results of Instagram's open ads API and the lack of Facebook cannibalization indicate that marketers would rather spend their social ad dollars on Instagram than smaller social networks like Twitter. As Instagram continues to grow, and Twitter's user growth slows even more, the latter will have an even harder time attracting advertisers and more ad spend.
Investors should look for more insights on Instagram's early advertising efforts during Facebook's fourth-quarter earnings report due in late January. Management has yet to release anything official regarding Instagram's ad business.
The article Look How Much Advertisers Are Spending on Instagram originally appeared on Fool.com.
Adam Levy has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.