The transition just crossed into the open. According to Sensor Tower data, Instagram Reels captured more than half of all ad impressions in 2025, up from 35% just 12 months prior. This isn't growth—it's a structural shift. Meta's short-form video gamble, launched as a TikTok countermeasure five years ago, has become the company's primary monetization engine. The inflection validates Zuckerberg's platform pivot but opens a new problem: Reels generates materially less revenue per impression than Feed ads, forcing Meta to solve the equation through sheer volume and recommendation algorithm sophistication.

The numbers tell a story about shifting power inside Meta's advertising architecture. Reels went from experimental feature to majority format in roughly the time it takes a Series B company to reach sustainable growth. That's not incremental. It's a platform realignment that changes how billions of dollars in marketing spend flow, where creative teams build, and which platforms own the future of social commerce.

When Zuckerberg announced Instagram Reels in August 2020, it was a defensive play. TikTok was eating social media's lunch, pulling time away from every legacy platform. YouTube launched Shorts. Meta went all in on Reels. For three years, the feature felt optional—a way to keep younger users engaged while Feed ads remained the revenue core.

That era ended last year. The shift happened quietly, then all at once.

The data from Sensor Tower, shared with CNBC, shows the magnitude: Instagram U.S. users spent 46% of their time on Reels in 2025 versus 37% in 2024. That nine-point jump doesn't sound dramatic until you realize what it means for advertiser workflows. "Legacy services are seeing ad volume shift away, with advertisers prioritizing more Reels to meet users where they are," Abraham Yousef, senior insights analyst at Sensor Tower, told CNBC. Translation: Facebook Feed is where engagement goes to decline. Reels is where attention lives.

But here's the inflection point that matters most: Meta's recommendation engines have finally cracked the code on vertical video monetization. In October, Mark Zuckerberg announced on an earnings call that Instagram and Facebook Reels had surpassed a $50 billion annual run rate. That's from a feature that generated almost nothing three years ago. The question everyone's asking—and that analysts like Dan Flax at Neuberger Berman are tracking closely—is whether Meta can continue scaling Reels revenue despite the persistent math problem Zuckerberg himself flagged back in 2023.

"Currently, the monetization efficiency of Reels is much less than Feed," Zuckerberg said publicly, explaining why Meta stopped paying creators directly for Reels. "So the more that Reels grows, even though it adds engagement to the system overall, it takes some time away from Feed and we actually lose money." That was three years ago. The fact that Reels now dominates user attention suggests either the math has changed, or Meta decided that engagement at any monetization level beats lower engagement with higher per-impression rates.

Here's what actually shifted: AI recommendation engines. The same systems that power TikTok's addictive algorithm—and that YouTube has spent a decade perfecting—now drive Meta's Reels. The difference between early Reels and today's version is like comparing email spam filters to Gmail's inbox. "They're surfacing content to the user, and as they get more signals based on what the user watches, that's helped their recommendation engines get better and you've seen it in the Reels revenue number," Flax noted. That improvement compounds. Better recommendations mean longer session times. Longer sessions mean more ad inventory. More inventory at lower CPMs still beats less inventory at higher CPMs when volume scales.

Advertisers are making this calculation in real time. Marketing teams at brands spending six or seven figures monthly on Instagram are facing a reality check: Feed placements now compete with Reels for eyeballs on the same app. The platform's algorithm systematically favors Reels engagement. That means Feed ads often become the "also running" placement. Smart agencies are already restructuring creative workflows around Reels-first strategies. The 6-month window for optimization is closing fast. By Q2 2026, Reels best practices won't be early-mover advantage—they'll be table stakes.

The competitive landscape makes this timing sharper. TikTok users average 81 minutes per day on the app—still leading the vertical video wars. YouTube Shorts, by contrast, showed flat watch time last year, suggesting Google's copycat strategy isn't gaining traction. That leaves Meta and TikTok as the two dominant forces in algorithmic short-form video. The race isn't about feature parity anymore. It's about recommendation sophistication and advertiser reach concentration. Meta just proved it can move as fast as TikTok on the first metric. Advertiser adoption is doing the second.

The next milestone arrives January 28 when Meta reports Q4 2025 results. Analysts will be parsing Reels revenue growth, total advertising revenue, and any commentary on Feed monetization. Investors want to know if Meta solved the per-impression rate challenge or if it's simply accepted lower CPMs in exchange for Reels' scale. The $50 billion run rate announcement from October gives a baseline—but annual run rates can flatten or accelerate fast depending on how Q4 performed.

For enterprise marketers, this transition opens a six-to-eight-month window to establish Reels expertise and optimize creative formats before the inflection crosses fully from opportunity to requirement. For investors in Meta, it validates the platform's pivot away from feed-centric design and toward algorithmic video—the same shift that made TikTok a $100 billion phenomenon. For builders developing ad tech, the message is clear: Reels infrastructure becomes non-negotiable for customer MAUs and sustained CPM velocity.

Instagram Reels crossed from growth experiment to revenue engine in 12 months. For advertisers, the inflection means Feed-first strategies are now Feed-last—a dramatic reversal that rewards early optimization but punishes delayed action. For investors, the $50 billion run rate signals Meta's platform pivot is working despite lower per-impression economics. For marketing professionals, the next six months are critical: mastering Reels analytics, creative formats, and audience segmentation before the early-mover advantage becomes table stakes. Watch Meta's Jan. 28 earnings call for Q4 Reels growth and any signal about monetization efficiency improvements. The competitive battle between Meta and TikTok just shifted from feature parity to algorithm dominance.