How TikTok clone – Instagram Reels can monetize short social videos ?

Instagram Reels a clone of the banned Chinese App TikTok is a potential positive around engagement, on what should be a highly monetizable vertical for Facebook Inc. In addition, we see the move as a defensive play in helping retain usage that might have otherwise shifted to TikTok from Instagram.

Product Managers had to debate on How much incremental consumption Reels offers versus cannibalism – does it take time spent from higher monetizing newsfeed or lower monetizing stories ? In our view we think it can drive a pickup in overall consumption and cannibalize more time from Stories, a modest positive if proven correct.

Does the format lend itself to more ads per minute or fewer ? This is composed of two factors. How many clips per minute a user can see and the ad load between clips to drive number of ads per minute. While we think that longer clips in Reels means viewers will move through less content per minute of time spent, we think they could actually show a higher ad load between these stories, largely offsetting the aggregate number of ads shown per minute of time spent.

Will there be Higher Ad Pricing for Reels ? For Stories, they have sound on 60-70% of time as per Instagram. We think Reels can see almost 100% sound on, with the potential for longer dwell time on ads, resulting in better performing higher priced ads. Ad pricing is largely a function of click-through-rate and ultimate downstream conversion.

Potential Advertising Success Rate of Instagram Neels
Assume that 15% of time spent on Instagram will be in Reels. Turning to ad volume, anecdotally speaking, we notice that Reels are on average longer than individual Stories which means that fewer Reels will be viewed per minute and therefore fewer ad slots in Reels than Stories. With that said, we see Stories ad load as in-line with Newsfeed, and think they could be even higher in the Reels format.

Finally, with regards to CPMs, we believe that because Reels will command a pricing premium over news-feed Stories ads given that: a) the content in Reels is entirely video, versus some mix of video and still images in Newsfeed and Stories, b) sound is likely on closer to 100% of the time in ads versus a reported 60% of the time for Instagram Stories, c)perhaps it is too early to know how it will scale, TikTok ad CPMs start at USD 10 as per digital agencies, thus an opportunity for Reels pricing to exceed Newsfeed.