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Celebrity Endorsements vs. Instagram Advertising: Could using a social network be more effective advertising?

While reading the Wall Street Journal a couple days ago, I came across an article that discussed the valuation of Instagram, specifically in respect to Facebook acquiring the company for $1 billion in 2012. In discussing the valuation, the article went to discuss the company’s recent ramping up of advertisements, which is the company’s main source of revenue. According to the article, “Based on industry reports… each Instagram ad generates revenue of roughly $3 to $6 for each user who clicks an advertisement” which translates to a Facebook/Instagram revenue of “between a low of $200 million and a high of $1.2 billion in the next year” (Farrell). While a major source of revenue for the Facebook group, the vast majority of people quickly gloss by these with only 1.5% of users targeted by ads actually clicking on this inorganic advertising. This has led many companies to seek other methods of advertising through the medium of Instagram in a more organic fashion.

This leads to a discussion of my second article (“Celebrity Endorsement On Instagram: The Good, The Bad & The Ugly”) from roughly a year ago that discusses celebrity endorsements on Instagram instead of using the company of Instagram to force advertisements into a user’s newsfeed. These celebrity endorsements are a perfect example of the utilization of social networks in order to disseminate information. As a general rule with paid celebrity endorsements, a celebrity with a large following on Instagram will enter a contract with a company and subsequently make one or multiple posts relating to the brand on their page. Examples of celebrities that have done deals like this are Beyoncé, with over 15 million subscribers, and Kim Kardashian, with over 17 million subscribers. Conceptualizing these two women as nodes in a graph, they both have truly millions of edges that can have more influence on their audience than Facebook would be able to with forced advertising. When done effectively, what makes these endorsements in many cases more successful is the fact that the advertisement is showing up on an individuals newsfeed through an account that they voluntarily follow. Putting this in the perspective of networks, especially from the perspective of the celebrity, these followers are weak ties. But as we discussed in class with Granovetter’s findings, just in the same way that someone would find a new job from a weak tie, these celebrity followers would be more likely to “fall” for the advertising as a weak tie suggestion. While the article does not discuss any specific monetary data points, simply glancing at the success of Jessica Simpson’s posts promoting Weight Watchers and the high number of active commenters demonstrates the effectiveness of this method, which is potentially greater than what Facebook can provide.

All in all, Facebook has a lot to prove to companies that their inorganic advertising is more valuable than the organic advertising of accounts with large followings. Celebrity endorsements at the moment seem to be a more effective method of reaching users due to their use of networks, something that Instagram can’t capitalize on despite the use of the medium.

Articles: http://blogs.wsj.com/moneybeat/2015/09/18/how-instagram-could-become-an-5-billion-business-but-not-much-bigger/

http://whitehorse.digital/celebrity-endorsement-instagram-the-good-the-bad-the-ugly/

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