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Business Operations Business Models

How Does Instagram Make Money (Business and Revenue Model)

The Instagram business model

How Does Instagram Make Money?
Here’s what you should know:
  • What is Instagram, and how does Instagram work?
  • How does Instagram make money?
  • Advertising
  • Instagram Shopping (Checkout Fees)
  • Instagram’s Subsidiaries, Acquisitions, and Exits
  • Instagram’s profit and revenue
  • What is the Instagram business and revenue model?
  • Instagram’s funding and valuation

How does Instagram make money if it’s free? Here is a full, in-depth, breakdown of their two (2) revenue streams and the different products and services they offer, as well as the Instagram business model, their year-over-year revenue, and how Instagram works.

What is Instagram, and how does Instagram work?

Instagram, a subsidiary of Facebook, Inc., is a social networking platform for sharing photos, videos, and messages between users.

How Instagram works is: Once a user creates a personal or business account, they can then begin to share photos and videos on their profile feed and stories to their friends on the platform.

Founded in 2010 by Kevin Systrom and Mike Krieger, Instagram later went on to become acquired by Facebook on April 9, 2012, for $1 billion. Since then, Instagram has more than roughly 1 billion monthly active users on the app.

Some of Instagram’s competitors include TwitterPinterestLinkedIn, Snapchat, and other social media platforms.

Instagram App in Apple App Store | Instagram Business Model | How Does Instagram Make Money?
Source: Apple App Store

How does Instagram make money?

According to a Statista chart, Instagram has more than roughly 1 billion monthly active users on the app. So how does Instagram make money off of all these users?

Below is a breakdown of how much money Instagram makes and its revenue model. Including their main revenue stream and how much they charge for their services.

Here are the 2 ways of how Instagram makes money (in 2021):

Instagram has a revenue model that makes money in two (2) ways – advertising and Instagram Shopping checkout fees.

#1. Advertising

Instagram, just like its parent company Facebook, makes the majority of all its money through advertising. In fact, Instagram is said to have brought in $20 billion in ad revenue of Facebook’s $70 billion of ad revenue in 2019, according to Bloomberg.

The way Instagram advertising works is: Advertisers first create a Facebook Ads Manager account from their existing Facebook account. Once the account is set up, they can then create ad campaign’s to tailor the target demographic, setting the budget, choosing which ads to run, etc.

Note: Roughly 28.6% of Facebook’s total ad revenue in 2019 was brought in by Instagram’s ad revenue.

#2. Instagram Shopping (Checkout Fees)

In March 2019, Instagram rolled out a new “Shopping on Instagram” feature that enables businesses to allow customers to shop and checkout without ever having to leave the app.

Instagram makes money on this by collecting a seller fee, or commission fee, on every completed purchase through Instagram’s in-app checkout.

Instagram Shopping and Checkout Fees:

  • 5% of order total, or a flat fee of $0.40 on all orders $8 or less
Instagram Shopping Checkout | Instagram Business Model | How Does Instagram Make Money?

Instagram’s Subsidiaries, Acquisitions, and Exits

Aside from Instagram being acquired by Facebook for $1 billion, Instagram has also made a total of 1 acquisition of its own, to date.

Instagram’s profit and revenue

Facebook, the parent company of Instagram, has not officially released official revenue numbers for Instagram. But, according to a Statista revenue chart, they estimate Instagram’s revenue was roughly $22.2 billion in 2020.

Note: Because Facebook Inc., the parent company of Instagram, is a publicly traded company, under the Securities Exchange Act of 1934, they must file continuous financial filings with the U.S. Securities and Exchange Commission (SEC). You can find all of Facebook’s publicly released financial reports, including annual reports, through Facebook’s investor section on their website.

What is the Instagram business and revenue model?

Instagram makes money through a few revenue models that they combine within their company, they are:

  • Advertising based business model
  • Commission based business model
  • Mergers & acquisitions (M&A) business model

Instagram’s funding and valuation

According to Instagram’s Crunchbase profile, Instagram has raised $57.5 million over 4 rounds and has an estimated valuation of $100+ billion as of 2018 according to Bloomberg and other sources.

Instagram was acquired by Facebook for $1 billion on April 9, 2012.