Instagram Founders’ Exit Triggers Concerns on Madison Avenue

By Anonymous

Advertising executives expressed concern that the exits of Instagram’s founders could signal unwelcome change for an app that has become a hugely appealing destination for marketers, with an identity separate from parent Facebook Inc.

Instagram confirmed that Kevin Systrom and Mike Krieger are resigning and leaving the company in the coming weeks, six years after their photo-sharing app was bought by Facebook for $1 billion. The pair had clashed with Facebook executives in recent months over their autonomy and growth tactics, The Wall Street Journal reported.

Any sign of instability at Instagram could raise concerns for advertisers, who are spending more dollars to the app as younger audiences migrate there from the original Facebook platform.

“If the founders left because they were worried about the future path of Instagram and what Facebook is going to do, that would be concerning,” said Mike Parker, global president at Hearst-owned digital ad firm iCrossing.

Some ad executives worry about Instagram losing the features that distinguish it from Facebook, such as its photocentric, simple design. Several features are now available across both the Facebook and Instagram platforms, including the Stories format—disappearing photos and videos—and their respective video sections, Instagram’s IGTV and Facebook Watch.

While making features available on both platforms expands the number of customers advertisers can reach, it also raises the question of “whether or not these options provide unique, differentiated opportunities for advertisers,” said James Douglas, head of media for Reprise, a digital ad agency owned by Interpublic Group .

Still, any risk from the “over-Facebookization” of Instagram would take time to play out, said Mr. Parker.

An Instagram spokeswoman declined to comment.

On Facebook’s second-quarter earnings call, Chief Executive Mark Zuckerberg said, “We believe Instagram has been able to use Facebook’s infrastructure to grow more than twice as quickly as it would have on its own.”

Some ad executives weren’t surprised by the departures of Messrs. Systrom and Krieger, after recent exits by other entrepreneurs whose companies were bought by Facebook, including WhatsApp and Oculus.

“In a sense, Facebook, which was once itself an upstart, has now become the establishment,” said Stephen Allan, world-wide chairman and CEO of Mediacom, a media agency owned by ad giant WPP PLC.

Instagram has become an attractive platform for advertisers, thanks to its visual nature and the easy-to-use Facebook ad-buying software that lets them place and measure their ads on the photo-sharing app. Instagram has also been left relatively unscathed as Facebook deals with issues ranging from the unauthorized disclosure of users’ data to the spread of misinformation on its platform.

Instagram has grown to more than one billion users and more than two million advertisers, Facebook said on its most recent earnings call. Facebook doesn’t break out Instagram’s revenue numbers in its quarterly financials. Market-research firm eMarketer estimates Instagram’s world-wide ad revenue will grow 110% this year to almost $9 billion.

The Instagram news feed, once a selective platform for glossy magazine-like ads for marquee brands, expanded its offering over the years to more advertisers, adding video and “shoppable” formats, where users can immediately click to buy items.

On the earnings call, Chief Financial Officer Dave Wehner said while users were flocking to consume content across the Stories format, those ads weren’t generating as much revenue as those in Facebook and Instagram’s feeds.

“Instagram has more heavy usage of Stories, so that’s an area of continued growth opportunity because the effective levels of monetization in Stories are lower,” Mr. Wehner said.

Instagram charges around four times more for a news feed ad than a Stories ad, Wells Fargo analysts said in a July note.

Some advertising executives aren’t concerned about any management drift.

“The platform is at a scale now where founders are most important if they are capable executives and still passionate to run the ship. Kevin is uber-talented and I’ve been blown away by his execution, but for Madison Avenue this is a nonevent,” said Gary Vaynerchuk, founder and CEO of digital agency VaynerMedia. “Facebook is loaded with talented executives.”

—Suzanne Vranica contributed to this article.

Write to Lara O’Reilly at lara.o'[email protected]