What Facebook’s new terms of service really mean: Ads are coming to Instagram

Hopefully they won’t look like this.
Hopefully they won’t look like this.
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In all the hullabaloo about Facebook’s new terms of service, which take away your right to vote on changes to Facebook’s privacy and other policies, we’re missing a larger story. Facebook is breaking down the walls that separated your personal data on Facebook and Instagram, and the results could be profound.

Previously, user data in Facebook and Instagram was “siloed,” which means that engineers (and marketers) on Instagram didn’t have access to the rich data about you available on Facebook, and vice versa. By commingling the data of the two services, Facebook is about to have a radically more comprehensive view of users of both. (This is part of a larger trend: Google has also broken down the silos that used to prevent data on one of its services from being accessible throughout the entire company.)

The root of this change is that, online, the aggregate of the personal data we make public is much greater than we realize. Here’s what that means.

1. Facebook is about to gain access to an enormous trove of data about where you live, work and play, which will tell them everything from your household income to your buying preferences.

So-called “geolocation” data is powerful stuff. Users who said “yes” just once to the question “Can Instagram use your location?” are putting a precise latitude and longitude stamp on every image they take. If you’ve turned off this feature in Facebook but you’re an Instagram user whose photos are geocoded, Facebook now has all the location data it needs to determine all kinds of ancillary facts about you.

That’s because where we live and where we go during the day turns out to be highly predictive of how much money we make, whom we associate with and what we like to buy. That’s the insight of academics who pioneered the field of “reality mining,” and that fact is now being exploited by savvy marketers.

2. Better ad targeting means ads are almost certainly coming to Instagram.

It’s possible Facebook could justify the $715 million it paid for Instagram on the grounds that it will help the company better target ads on Facebook, but it’s not likely. The easiest way for Facebook to monetize Instagram is to start putting ads into everyone’s photo streams on Instagram.

Before its integration with Facebook, the problem with putting ads in Instagram streams is that they could have been targeted using only a very limited pool of data–location, and sometimes not even that. But by adding your Facebook data to your Instagram data, Facebook can start to deliver ads that are relevant. They could be targeted by your location, time of day, demographics, your social network, brands you’ve “liked” on Facebook, etc. The more relevant the ads, the less offensive they’ll be, and the less likely they are to cause a backlash and mass exodus of users from Instagram.

3. Instagram’s ads might just be the first of a generation of mobile advertising that actually works.

The consensus of experts in advertising is that mobile advertising is terrible, and consists mostly of tiny ad units that annoy users and are rarely clicked on. That’s reflected in the lower prices marketers are willing to pay for mobile ads. Facebook itself admits that making money off of mobile advertisements is a problem. The company has responded by doubling down on innovation in mobile advertising, but so far nothing really workable has come out of Facebook or anyone else.

But Instagram, as an entirely visual, and so far ad-free experience, represents a clean slate. Interstitial ads–say, every 10th image on Instagram is an ad–could be screen-filling affairs that grab users with punchy messaging or provocative visuals, without being overly intrusive.

If Facebook can demonstrate real engagement with Instagram ads, it wouldn’t just be a sop to its investors, it could be the first step on the road to advertising models for apps and the mobile web that actually work.

Users will complain when ads come to Instagram, but advertisers will rejoice. Considering that Facebook needs to increase its revenue per user by a significant multiple in order to justify its share price, it seems inevitable that the company will take this route.