Instagram Founders' Exit Triggers Concerns on Madison Avenue
September 25 2018 - 4:36PM
Dow Jones News
By Lara O'Reilly
Advertising executives expressed concern that the exits of
Instagram's founders could signal unwelcome change for an app that
has become a hugely appealing destination for marketers, with an
identity separate from parent Facebook Inc.
Instagram confirmed that Kevin Systrom and Mike Krieger are
resigning and leaving the company in the coming weeks, six years
after their photo-sharing app was bought by Facebook for $1
billion. The pair had clashed with Facebook executives in recent
months over their autonomy and growth tactics, The Wall Street
Journal reported.
Any sign of instability at Instagram could raise concerns for
advertisers, who are spending more dollars to the app as younger
audiences migrate there from the original Facebook platform.
"If the founders left because they were worried about the future
path of Instagram and what Facebook is going to do, that would be
concerning," said Mike Parker, global president at Hearst-owned
digital ad firm iCrossing.
Some ad executives worry about Instagram losing the features
that distinguish it from Facebook, such as its photocentric, simple
design. Several features are now available across both the Facebook
and Instagram platforms, including the Stories format --
disappearing photos and videos -- and their respective video
sections, Instagram's IGTV and Facebook Watch.
While making features available on both platforms expands the
number of customers advertisers can reach, it also raises the
question of "whether or not these options provide unique,
differentiated opportunities for advertisers," said James Douglas,
head of media for Reprise, a digital ad agency owned by Interpublic
Group.
Still, any risk from the "over-Facebookization" of Instagram
would take time to play out, said Mr. Parker.
An Instagram spokeswoman declined to comment.
On Facebook's second-quarter earnings call, Chief Executive Mark
Zuckerberg said, "We believe Instagram has been able to use
Facebook's infrastructure to grow more than twice as quickly as it
would have on its own."
Some ad executives weren't surprised by the departures of
Messrs. Systrom and Krieger, after recent exits by other
entrepreneurs whose companies were bought by Facebook, including
WhatsApp and Oculus.
"In a sense, Facebook, which was once itself an upstart, has now
become the establishment," said Stephen Allan, world-wide chairman
and CEO of Mediacom, a media agency owned by ad giant WPP PLC.
Instagram has become an attractive platform for advertisers,
thanks to its visual nature and the easy-to-use Facebook ad-buying
software that lets them place and measure their ads on the
photo-sharing app. Instagram has also been left relatively
unscathed as Facebook deals with issues ranging from the
unauthorized disclosure of users' data to the spread of
misinformation on its platform.
Instagram has grown to more than one billion users and more than
two million advertisers, Facebook said on its most recent earnings
call. Facebook doesn't break out Instagram's revenue numbers in its
quarterly financials. Market-research firm eMarketer estimates
Instagram's world-wide ad revenue will grow 110% this year to
almost $9 billion.
The Instagram news feed, once a selective platform for glossy
magazine-like ads for marquee brands, expanded its offering over
the years to more advertisers, adding video and "shoppable"
formats, where users can immediately click to buy items.
On the earnings call, Chief Financial Officer Dave Wehner said
while users were flocking to consume content across the Stories
format, those ads weren't generating as much revenue as those in
Facebook and Instagram's feeds.
"Instagram has more heavy usage of Stories, so that's an area of
continued growth opportunity because the effective levels of
monetization in Stories are lower," Mr. Wehner said.
Instagram charges around four times more for a news feed ad than
a Stories ad, Wells Fargo analysts said in a July note.
Some advertising executives aren't concerned about any
management drift.
"The platform is at a scale now where founders are most
important if they are capable executives and still passionate to
run the ship. Kevin is uber-talented and I've been blown away by
his execution, but for Madison Avenue this is a nonevent," said
Gary Vaynerchuk, founder and CEO of digital agency VaynerMedia.
"Facebook is loaded with talented executives."
--Suzanne Vranica contributed to this article.
Write to Lara O'Reilly at lara.o'reilly@wsj.com
(END) Dow Jones Newswires
September 25, 2018 16:21 ET (20:21 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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