Instagram Surprisingly Cuts Reels Creator Bonuses
On March 10, 2023, Meta made a shocking announcement that they would no longer offer bonuses to creators on Reels for Instagram or Facebook. This decision goes against the trend of platforms doubling down on short-form video content to compete with the explosively popular app TikTok. According to CEO Mark Zuckerberg, promoting Reels was costing Meta around $500 million per financial quarter, totalling nearly $2 billion per year.
At first glance, it may seem reasonable that Meta pulled back on Reels if it was significantly impacting their bottom line. However, when looking at the full financial picture of Instagram itself, that $2 billion annual loss is comparatively quite small.
Instagram’s Massive Revenue Despite Reels Losses
In 2023 alone, Instagram is projected to generate over $50 billion in total revenue. To put that into perspective, that is:
- $20 billion more revenue than YouTube
- $37 billion more than TikTok
- And over 11 times more revenue than Snapchat
In fact, Instagram is the second most lucrative social media platform globally, second only to parent company Facebook. The estimated $2 billion toll from Reels promotions equates to only around 4% of Instagram’s gargantuan annual revenue.
So Mark Zuckerberg’s decision to scale back Reels seems to be more of a strategic business move rather than a financial necessity. Reels will still exist within Instagram but will likely take a backseat compared to the platform’s core photo and video feed features. Given Instagram’s existing financial success, this appears to be a calculated strategy by Meta leadership.
The Keys to Instagram’s Profitability
Clearly, Meta has mastered monetizing Instagram’s vast userbase. But how does such a simple photo and video sharing app generate over $50 billion per year? The answers lie in Instagram’s intentional demographic targeting, experimental ethos, and creator revenue splits.
An Aspirational Demographic
Unlike YouTube serving every form of content to all users, Instagram cultivates an “aspirational” userbase. People browsing Instagram tend to seek content showcasing lifestyles, beauty standards, vacations, and material possessions they desire but do not have.
Instagram is also notoriously negative for users’ mental health as they compare their realities to the carefully curated glimpses of others. However, this fuels the perfect dynamic for advertisers to tap into users’ insecurities and dreams, resulting in sky-high conversion rates.
Experimentation Backed by Facebook
After Facebook acquired Instagram in 2012 for $1 billion, CEO Kevin Systrom retained independence to operate Instagram like a start-up with Facebook’s full financial resources and scale. This allowed Instagram to aggressively experiment with mimicking competitors’ features like Snapchat Stories or TikTok’s short video Reels.
Having the flexibility to trial multiple formats and double down on the most effective ones has been key to honing Instagram’s product suite. The company uses data-driven decisions to determine what features engage users most while contributing to overall business growth.
Minimal Revenue Sharing with Creators
Unlike YouTube splitting advertising earnings with video creators, historically Instagram has not needed to share its revenue. For most users, the main goal is gaining followers and popularity rather than earning money directly. As a result, Instagram retains basically all revenues generated from its core feed ads.
The Road Ahead for Instagram
Leveraging its ideal demographics for advertisers, ability to experiment backed by Meta, and creator dynamics, Instagram has cemented itself as a $50+ billion per year business. While other platforms may go “all in” on short-form video, Instagram is clearly not willing to undermine its already successful formula to chase the latest trend. For now, Reels will simply remain an additional offering to complement the app’s bread and butter features.
