Instagram Taking Cues From Facebook: For Better or Worse?

User outrage is nothing new for Facebook (NASDAQ:FB), but the social network’s photo-sharing application Instagram got its first dose after its Terms of Service were updated on Tuesday. Worries that the service could sell their photographs to advertisers without their permission drove users to post angry messages on Twitter and upload images on Instagram protesting the policy, while many chose to close their Instagram accounts. However, Instagram chief executive Kevin Systrom stated in a blog post on Wednesday that these fears were unfounded.

What did Instagram’s new service terms mean?

“Instagram users own their content and Instagram does not claim any ownership rights over your photos, wrote Systrom in his post. He explained that the change in service terms was meant to allow the company to “experiment with innovative advertising that feels appropriate on Instagram.” The company will be further updating its policy to make its intentions more easily understood, he added.

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Even though Instagram’s updated terms of service were met with an onslaught of user backlash, Facebook has a similar clause in its own user agreement. Its terms state, “You can use your privacy settings to limit how your name and profile picture may be associated with commercial, sponsored, or related content (such as a brand you like) served or enhanced by us. You give us permission to use your name and profile picture in connection with that content, subject to the limits you place.” Just as Facebook utilizes users’ data to tailor advertisements to their personal preferences, so does Google (NASDAQ:GOOG), and so will Instagram.

“From the start, Instagram was created to become a business,” Systrom noted. “Advertising is one of many ways that Instagram can become a self-sustaining business, but not the only one.”

CHEAT SHEET Analysis: Will Instagram’s terms still be a negative catalyst for Facebook’s stock?

One of the core components of our CHEAT SHEET Investing Framework focuses on catalysts that will move a company’s stock. Facebook would not have bought Instagram if the company did not think it could monetize the application. But as associate professor at the Santa Clara University School of Law Eric Goldman told The New York Times, conflicts like the one between Instagram and its users are part and parcel for companies offering free online services, as most will eventually seek to profit from them. “The interest of the site is never 100 percent aligned with the users, and the divergence inevitably leads to friction,” he said. “It’s unavoidable.”

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