So is Facebook’s.
So far, Facebook’s acquisition of Instagram has been a total success — one of the biggest of the internet era. The app, which Facebook acquired for $1 billion in 2012, now has more than 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 how it gives Facebook a connection to young people.
But Instagram isn’t just a nice thing for Facebook to have around. Increasingly, Facebook needs Instagram, and will soon rely on 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, and that has helped it become one of the world’s most valuable companies. But it has also been warning for two years that its revenue growth would start to slow. When that happens, Instagram will have to drive the next phase of growth.
Last quarter, Instagram generated an estimated $2 billion, or about 15 percent, 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 percent of Facebook’s ad revenue in two years, as well as nearly 70 percent of the company’s new revenue by 2020 — driving the majority of Facebook’s growth.
Instagram is an incredibly important part of Facebook’s future, and Facebook and CEO Mark Zuckerberg are now under pressure to make sure their prized acquisition doesn’t go off the rails with its co-founders out of the building. Zuckerberg surely knows that. It’s likely why he appointed Adam Mosseri, a well-liked and experienced Facebook product executive, to take over at Instagram.
Mosseri’s last job at Facebook: Running News Feed, the most important and valuable product at the entire company.