2016: The End of the Engagement Gold Rush for Brands on Instagram?

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Instagram Michael Kors spring 2016 ad campaign

If you’ve noticed more ads popping up between friends’ latte shots and puppy photos in your Instagram feed, you’re not imagining things. In August, Instagram opened up its ads API to brand partners of all sizes. That meant easier access and data feedback for businesses using Instagram as a paid channel to drive awareness, engagement or direct traffic.

Since then, the number of ads served has soared, at least according to one of Instagram’s official ad-serving partners, Brand Networks. The ad tech firm’s 2015 year-end report shows 50 million Instagram ad impressions served in August, 100 million in September, and a high of 670 million in December.

While some of that year-end growth could be attributed to holiday shopping and budget-wringing, Instagram is clearly maturing into a preferred brand advertising medium. Coupled with declining organic engagement, the increase in ads is a clear signal that Instagram is becoming a pay-to-play platform for brands.

To owner Facebook’s credit, Instagram appears to have accomplished its steady growth without sacrificing their CPM (cost per 1,000 ad views), which despite fluctuations ended the second half of 2015 slightly higher ($5.94) than where it began ($5.24), with a CPM high during November’s holiday marketing frenzy of $7.20. No surprise that fashion was the industry with the highest average CPM during the first six months of the new API.

2015 Instagram advertising CPM Brand Networks

Instagram advertising 2015 industry by cpm

But another figure has declined. The trajectory of ad impressions served on Instagram is the inverse of declining organic engagement top brands saw in 2015. According to a study by social analytics provider Locowise, engagement on Instagram fell dramatically in 2015, from 2.8% in April to less than half that (1.1%) in December.

Compare that decline to data from Forrester’s Social WebTrack study in 2014, which looked at how the top 50 brands on Interbrand’s Best Global Brands report that year fared on social media. The study found that Instagram’s organic engagement rate (based on user interactions with a brand’s social media channels) was a lofty 4.2%, making it “the king of social media engagement.”

Considering that drop, it would seem as if the glory days of sky-high organic engagement for brands on Instagram are coming to a permanent close.

Forrester research Interbrand Best Global Brands 2014 2015 engagement social media

Forrester Best Global Brands Interbrand social media 2014 performance

While there are too many factors at play to diagnose exactly what’s going on, there are a number of possible explanations for this decline. It could be that users’ limited attention is being drawn to the increasing number of paid posts, resulting in less action on those of the brands they follow. Or, it could just be interpreted as the maturation of user behavior on a platform—perhaps as users follow more and more brands, their collective love is getting spread thin.

But, with Instagram’s UI still displaying every post in-feed (more like Twitter’s real-time feed vs. Facebook’s edgerank algorithm), there’s no reason to assume Instagram is manipulating things behind the curtain.

Instagram advertising

But there’s an undeniable correlation emerging between Instagram’s monetization and that of its parent platform. Back in 2014, industry thought leaders like John Battelle spotted the writing on the wall with Facebook: after years of encouraging brands to build organic communities on the platform, Facebook’s edgerank began minimizing brands’ presence in their followers’ news feeds. This only came after their self-serve ad network was up and running.

Consider the same Forrester study of Interbrand’s best global brands, in which Facebook’s 2015 0.2% organic engagement rate puts Instagram’s decline in perspective (Instagram is still the leading platform for organic engagement by far). But by the time the industry saw what was going on with Facebook, it had solidified its user base, and was perceived by most brands as a table stake for engaging with their customers online.

Instagram Carousel advertising

Instagram, offering ever more ad units including carousel ads and panograms, is bullish on its prospects to increase brand awareness and engagement, citing statistics such as “Across more than 700 campaigns that have run on Instagram, 98% of campaigns have generated significant lift in ad recall with an average ad recall of 18 points. That’s 2.8 times higher than Nielsen norms for online advertising.”

So will 2016 be the end of the organic engagement gold rush for brands on Instagram? By opening the valve on ad impressions, is the Facebook subsidiary letting user behavior play a similar role as edgerank in creating paid media dependency by advertisers? It’s impossible to say just yet, but there’s a clear pattern emerging. Just follow the data.


—Jared Spears is a Verbal Identity consultant for Interbrand New York

Image at top: Michael Kors/Instagram

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