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How Facebook Can Finally Start Making Money Off Instagram

Instagram
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Instagram

With more than 100 million active users, Instagram has yet to monetize its photo-sharing social network.

Acquired by Facebook in April 2012, Instagram—one year later—has had some trouble cashing in. The company announced changes to its privacy policy last September that would have given users' data to Facebook affiliates and advertisers, as well as reserving the right to feature users' photos in advertisements. But Instagram backtracked when users protested.

What's been working for a rival social network may be a nice start for Instagram.

Twitter, which features trending topics alongside users' streams on its site and mobile application, asks for $200,000 a day per promoted trend in the United States, according to a source in the advertising industry. A promoted trend lets an advertiser insert its own message atop the list of nine trending topics. It has been working very well for the micro-blogging social network.

How well? Over the past 34 days, CNBC tracked Twitter's promoted trends and found they sold the space 27 times. Based on the $200,000 figure, Twitter raked in $5.4 million in that time just from the promoted trends section.

CNBC reached out to Twitter for comment on its advertising rates, however, the company said it doesn't disclose promoted trend pricing.

Film production and media companies lead the social charge, taking out 35 percent (12 of 34) of the promoted trends since March 7th. An even better sign for Twitter, five advertisers (AT&T, A&E, Sony, McDonalds and Capital One) were repeat promoters.

If you're heading up business for Instagram, wouldn't it make sense to follow suit?

"Although Instagram has never publicly mentioned a monetization strategy, it'd be naive to think the company hasn't considered advertising options when designing the app's layout," said Brendan Lowry, marketing director at Curalate, a social media image analytics company. "In its current state, Instagram's Explore section lends itself to native advertising that could mirror Twitter's promoted trending topics, revealing relevant content that encourages engagement."

Using that strategy, the Explore section, which features Instagram's popular photos, could display 15 trending photos and one promoted photo tucked in the top left corner of the screen. It could also display seven trending photos and a single promoted photo, leaving room for a trending hashtags section that could display a daily promoted hashtag. From there, advertisers may be eager to display a promoted photo and hashtag to more than 200 million eyeballs.

Lowry said he believes sponsored photos and hashtags in Instagram's Explore section can be successful.

"Clearly, content that's highlighted in this section receives significant engagement,," he said. "For now, Instagram could implement something lightweight like a shadow, highlight or icon to label sponsored content.

"In the future, an overhaul of the layout could offer even greater advertising opportunities for brands, but may significantly disrupt the user experience," Lowry added.

For now, he said, "leveraging Instagram's data regarding location, gender, previously used hashtags, etc., will be necessary to target the right users and keep the experience as native as possible, just like Twitter's current implementation."

Twitter's video-sharing network, Vine, recently added a Trending hashtags list in its mobile app's Explore section, making way for potential ad buys on a promoted trend. Seeing how well the promoted space resonated with advertisers on Twitter, this seems like a logical move and one that Instagram may be interesting in making.

— Written by CNBC's Eli Langer. Follow him on Twitter at @EliLanger.

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