Popularity vs profitability: continuum or condundrum?

Facebook's wildly exponential growth in
users virtually from its inception compares relatively unfavorably to
its slow transformation to a profit
making engine. The social network site’s
founders’ historical near-aversion to ads slowed the monetization process;
which happily for shareholders is now well under way. It is a tale that
appeared to be repeating itself with Instagram, the photo and video sharing
service it paid nearly a $1bn a year ago to acquire.

Perhaps in a bid not to be upstaged by the
public offering of Twitter (which has a clearly defined platform for
advertising), Facebook has decided to pitch Instagram into the ad world effectively ending the free ride that has made Instagram's move towards monetiziation resemble Facebook's own dilatory transition.

The popularity vs profitability continuum is a tightrope that few companies across industries successfully master. Android phones are known to be significantly more popular but are always bested in the proftiability arena by Apple's iPhone using its proprietary iOS system.

Instagram says it aims "to make any advertisements you see feel as natural to Instagram
as the photos and videos many of you already enjoy from your favorite
brands". That is likely a hard act to pull off perhaps akin to hotels offering "free" WiFi interrupted by advertisements for services in and out of the house or free inflight movies interspersed with ads.

In the case of hotels and airlines these are ancillary services or products that not only enhance the customer experience but have become a requirement. But for Instagram, the "business" premise even if it was never meant to endure was a free ride that founders hoped could be monetized even if not exactly along the lines now being rolled out. The transition has few precedents other than Facebook, the new owners of Instagram.

Whether Instagram succeeds well enough or not will be known before long but a better route to monetization may have been one used by Zagat which harnessed user generated content in a pre-digital age and sold it while ensuring customer anonymity. Perhaps a more apt model is one used by competing site,  Pixter which sports a byline that says "We sell our product, NOT our users". Pixter allows upto 52 posts for free or a very modest $3.99 per year for unlimited posts.  A fair presumption is that, once hooked, customers will feel the need to go for the paid service without having to worry about intrusive ads.

Published by

Vijay Dandapani

Co-founder and president of a New York based hotel company for 24 years. Grew the firm to five hotels in Manhattan and also developed a greenfield project at MacArthur airport, New York. Speaker at numerous prestigious forums including Economy Hotels World Asia, Lodging Conference, NYU, Columbia University Real Estate Roundtable, Baruch College's Zicklin School and ALIS. President and ceo of New York City Hotel Association since January 2017.

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