The following excerpt is from the article Is Instagram Another Path to Riches for Facebook?, written by Vindu Goel and published on The New York Times. Read on to learn how retailers are capitalizing on Instagram's captive audience and then check out the full article for more background on the study that formed the basis of the argument.
Instagram is already growing like one of the beans in the Jack and the Beanstalk tale. With a little nurturing, it could grow to the sky.
That’s certainly the assessment of a new study by L2, a retail analytics company based in New York, and Olapic, a New York start-up that specializes in helping brands solicit and publish photos of their products that have been taken by ordinary users.
Instagram users are overwhelmingly young, wealthy and female, according to their research. About 58 percent use the service every day. The service is growing faster than any other major mobile app or social network, including Twitter and YouTube.
And most important for Instagram’s future revenue potential, hundreds of the world’s top brands, from fashion powerhouses like Gucci and Michael Kors to mass-market retailers like Macy’s and Gap, are using Instagram to generate a lot of interest — and presumably, sales — from Instagram users.
Victoria’s Secret, the lingerie retailer, has the biggest fan base of any brand L2 studied, with 3.9 million followers on the service. Chanel, which has no official presence on the site, has nevertheless attracted five million photos with the hashtag #chanel.
“You can make the argument that this is the most powerful social media platform in the world right now,” said Scott Galloway, the founder of L2 and a professor of marketing at New York University’s Stern School of Business.
Twitter and even Facebook itself might not agree with that assessment.
But Instagram’s success connecting brands with their most dedicated fans is undoubtedly impressive, especially given that the service forbids the posting of links with photos and has only just begun testing advertising in the photo stream. If Instagram were to turn up the volume on e-commerce and advertising — imagine a click-to-buy button on that photo of Louboutin shoes — well, let’s just say that would be Instamoney. (L2 predicts that Instagram will generate $250 million to $400 million in revenue this year.)
Instagram is already generating real revenue for brands, according to Pau Sabria, co-founder of Olapic. His firm helps companies like American Eagle Outfitters, Lancôme, Coach and West Elm to solicit photos of their products being used by ordinary people and then post them on retail sites as a supplement to staged catalog shots.
He said that by adding such user-generated photos to a retail site, the number of visitors who turn into buyers increased by 5 to 7 percent and the average order value rose by 2 percent.
“The fact that you can explore how it looks — a specific dress, a specific necklace — in real life is something are people are interested in,” Mr. Sabria said.
Abigail Jacobs, vice president for brand marketing and public relations at West Elm, a home furnishings retailer, said her company worked with Olapic to start soliciting customer photos on Instagram via the hashtag #mywestelm in September.
West Elm now has a dedicated page on its website featuring the user photos, sorted by room. Some of the best ones even make it into the print catalog.
Ms. Jacobs said the campaign had been very popular and included some surprises. For example, so many customers sent photos of their dogs and cats sprawled on West Elm furniture that the company broke out a separate pet category in the gallery.
It’s unclear whether the images have increased sales, she said, but the company hopes to test that in a couple of months when it adds customer photos to the official web listing of each item. “We think of it a visual customer review option,” she said.
Mr. Galloway said that Instagram’s 15-second videos and the recently added ability to send private messages between users would open new opportunities for brands to connect with customers.
He views Instagram as a threat to Twitter, which is built around 140-character snippets of text, and Tumblr, the blogging platform bought by Yahoo last year, in the competition for advertising dollars. “I think visual platforms are going to be more attractive to advertisers,” he said.
The key, in his view, is how humans instinctively react to images. “We absorb visual information 50 times faster than text,” Mr. Galloway said. “Visuals go right to our heart.”