Is Facebook, Inc Ready to Prime the Instagram Advertising Pump?

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Like its primary digital advertising competitor Google , Facebook is always exploring ways to generate additional revenue from its vast array of user data. Giving credit where credit is due, Facebook has done a fantastic job utilizing its internal technologies and processes to target ads on its site with a laser-like focus. The result has been great for marketing departments, who've enjoyed industry-leading returns on their investments, which in turn has meant Facebook is able to charge some of the highest fees around.

But as positive as Facebook's ad revenues have been due to its ability to collate, analyze, and utilize its reams of user data, advertisers have been somewhat limited in that the vast majority of spots are for Facebook's site alone. Of course, with 1.32 billion monthly active users, or MAUs, Facebook advertiser's "limited" reach is relative, but what if its marketing partners were able to buy spots on other sites, via Facebook, and still use its wealth of user data? Now they can, and it appears Facebook's new ad network may help jump-start the long-awaited monetization of one of its most valuable assets.

Introducing Atlas
Both CEO Mark Zuckerberg and COO Sheryl Sandberg ruffled more than a few feathers during Facebook's Q1, 2014 earnings call. After announcing yet another quarter of outstanding earnings and user growth, Zuckerberg and Sandberg took a bit of the wind out of investor's sails when asked when Instagram -- Facebook's photo-sharing social media property -- would start generating the significant revenues we've all been waiting for. Instagram, according to Sandberg, "would be slow to monetize." Ouch.

Rumors of Facebook rolling out a new and improved ad network have made the rounds for months. As it turns out, the rumors were true. Facebook unveiled its Atlas ad network solution earlier this week. Facebook acquired Atlas about a year-and-half ago from Microsoft, and has apparently been readying it for prime time since. Turns out, that time is now.

Atlas gives advertisers the ability to buy ads through Facebook and, most importantly, utilize its in-depth user data to better target their spots, and place the ads across multiple, non-Facebook online sites. Atlas also assists marketers in the all-important process of measuring an ad's effectiveness, whether the spot is on Facebook or not, including spots viewed on mobile devices.

Instagram and the future
All the bells and whistles Atlas provides marketing partners is great, and also gives Facebook a chance to use one of its most valuable assets -- user data -- in yet another, revenue enhancing way. It's great for investors, as well as advertisers. However, the most intriguing part of the Atlas roll-out announcement was naming a couple of its first partners. Advertising giant Omnicom was one, which isn't surprising considering it's worked with Facebook for some time now. The other partner? Instagram. Facebook said there are more folks lined up to implement its Atlas solution, but including Instagram in its early stages brings with it a world of opportunity.

With over 200 million loyal MAUs, and growing, Instagram is a treasure trove of ad revenues just waiting to happen. The reason investors, analysts, and industry pundits alike were so discouraged by Sandberg's statement that Instagram wouldn't add appreciably to revenues this year, is they were expecting hundreds of millions in ad sales, and that was just during the ramp-up period. Now, with the introduction of Atlas, which includes Instagram as a partner, Facebook may be getting ready to deliver.

Anything you can do, I can do better
Naturally, Google isn't sitting idly by as Facebook continues to grow its display advertising business. Most of Google's earnings are of the pay-per-click variety, but you can bet it wants to boost its display ad revenues, too, particularly on mobile devices. The day following news of Facebook's new and improved Atlas ad network, Google introduced a suite of new tools and advertising formats of its own, many of which are specifically targeting mobile device ads. Jonathan Alferness, director of product management for mobile display ads at Google, said, "A new generation of display ads is changing how advertisers engage with consumers on mobile devices."

Final Foolish thoughts
The fight for digital ad revenues in general, and mobile display ads in particular, is heating up. For Facebook, Instagram will prove to be a significant part in winning the online advertising battle with the current king, Google. Could it be that Sandberg was simply managing investor's expectations when she said Instagram revenues wouldn't add much to Facebook's bottomline this year? If the Atlas ad network announcement is any indication, that's exactly what she was doing.


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The article Is Facebook, Inc Ready to Prime the Instagram Advertising Pump? originally appeared on

Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google (A shares), and Google (C shares). The Motley Fool owns shares of Facebook, Google (A shares), Google (C shares), and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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