When Instagram founders Kevin Systrom and Mike Krieger announced last month they were stepping away from Facebook, there was a collective gasp: Instagram’s future was suddenly at risk.
So is Facebook’s.
So far, Facebook’s acquisition of Instagram has been a complete success — one of the most important of the internet era. The app, which Facebook acquired for $1 billion in 2012, currently has over a billion users and should generate $8 billion to $9 billion in revenue this year, depending on whose estimate you use. Other achievements are harder to measure, like how Instagram reduced Snapchat as a strategic threat by cloning many of its features, and the way it gives Facebook a connection to youngsters.
But Instagram isn’t simply a pleasant thing for Facebook to have around. Increasingly, Facebook needs Instagram, and will soon depend upon it to drive the majority of the company’s advertising revenue growth, according to some projections.
Facebook’s ad business has been growing rapidly for years, which has helped it become one of the world’s most valuable corporations. However it’s conjointly been warning for 2 years that its revenue growth would start to slow. Once that happens, Instagram will have to drive the next phase of growth.
Last quarter, Instagram generated an estimated $2 billion, or about 15 %, of Facebook’s $13 billion in ad revenue, according to estimates from Andy Hargreaves, a research analyst with KeyBanc Capital Markets. Hargreaves expects Instagram to grow to about 30 % of Facebook’s ad revenue in 2 years, as well as nearly 70 % of the company’s new revenue by 2020 — driving the majority of Facebook’s growth.
Instagram is an incredibly vital part of Facebook’s future, and Facebook and ceo Mark Zuckerberg are currently under pressure to make sure their prized acquisition doesn’t go off the rails with its co-founders out of the building. Zuckerberg certainly is aware of that. It’s likely why he appointed Adam Mosseri, a popular and experienced Facebook product executive, to take over at Instagram.