Instagram signs major ad deal with Omnicom

Instagram has signed its first major ad deal with Omnicom.

The two have partnered to launch a paid advertising platform.

AdAge reported the year-long partnership could be worth US$100 million, Bloomberg pegged it at $50 million, but other sources say it's close to US$40 million.

In a statement to Marketing, a Facebook spokesperson confirmed the deal.

“We’re excited about the agreement with Omnicom Media Group to develop and execute brand campaigns on Instagram. Instagram will work closely with OMG’s agencies and clients to introduce creative best practices and content that inspire the Instagram community.”

(Read also: 10 tips for brands on Instagram)

The deal allows brands operating in Omnicom's media and creative agencies to show promotional videos and pictures to Instagram users.

Instagram was acquired by Facebook in 2012 for US$1 billion and launched its advertising capabilities only a year and half after.

Michael Kors was one of the first brands to roll out the ads and the platform now sees brands such as Lexus, Adidas, Burberry and Ben & Jerry’s follow suit.

Last year Instagram co-founder Kevin Systrom wrote in a blogpost that company was created to become a business.

"Advertising is one of many ways that Instagram can become a self-sustaining business, but not the only one. Our intention in updating the terms was to communicate that we’d like to experiment with innovative advertising that feels appropriate on Instagram."

So can the deal work, especially without upsetting its user base?

Profero South East Asia MD Stuart Edwards said the success of the deal will rely on a customer-centric approach.

“If Facebook, Instagram and Omnicom put the effort in to only publish targeted advertising that actually meets the needs of the recipient then its a good thing, people get want they want and it adds value,” he said.

“If their ads do little more than spoiling a good user experience when using Instagram, which I suspect will be the majority case, then it will just erode the value of the application to the audience, reducing the stickiness of the platform, driving the audience to migrate to the next cool app that hasn’t sold out commercially.”

Pat Law, managing director of Goodstuph told Marketing thatclients are sophisticated enough to get quality over quantity and they do care where their followers are from.

"I’m interested to know how Instagram will monetise the data for advertising purposes. I say this because broadly speaking, Instagram has one of the least amount of demographic data collected of users compared to social media platforms such as Facebook," she added.

(Read also: Instagram versus Pinterest: What's your choice?)

Chairman of VMLQais, Keith Timimi added he was not surprised by the move.

"Of course Omnicom will do a deal with Instagram, as will WPP, Dentsu, IPG, Havas and anyone else who runs media," he said.

As a community, Instagram has over 150 million users worldwide, and is growing rapidly. Its community generates 55 million photos and 1.2 billion likes – per day, added Timimi.

Crucially Instagram is brand-safe compared to the likes of Snapchat which still has a question mark hanging over its head.

Since it is represented by Facebook, which has both global sales and global partners, advertisers in Asia will be able to get on board as soon as it is opened up to local advertisers, he said.

"Deals will be done and millions of dollars will be spent by some of the most iconic brands in the world on Instagram this year," he added.

(Photo credit: VMLQais)