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Instagram is changing. The popular mobile photo sharing service's rapid rise and $1bn acquisition by Facebook is the stuff of startup legends, but Instagram's story is still being written.

Today, the new path the company is charting has it fighting strong headwinds as users take issue with some of its plans.

Little more than a week ago, Instagram shut off access to Twitter. The company's CEO, Kevin Systrom, defended the move, saying, "Obviously things change as a company evolves."

Big deal or much ado about nothing? That's debatable.

Now Instagram is catching flack from users over changes to its terms of service. Some of these changes, such as Instagram's newfound ability to share user information with Facebook, were expected. But some, such as a provision giving Instagram the authority to use a user's "username, likeness [and] photos...in connection with paid or sponsored content or promotions, without any compensation to you" has sparked a backlash.

Adding fuel to the fire is the fact that, in apparent violation of FTC guidelines, Instagram's updated terms indicate that Instagram "may not always identify paid services, sponsored content, or commercial communications as such."

Why the surprise?

Not surprisingly, the blogosphere is abuzz and some users appear to be genuinely angered by Instagram's move. While it remains to be seen just how many of the upset users will follow through and delete their accounts, it would appear that Facebook's billion-dollar investment is far from a sure bet at this point.

To some, however, the anger is misplaced. After all, Instagram needs to make money, and it wouldn't have been unreasonable for users to expect that the Instagram experience would eventually change as a result.

Alexis Madrigal of The Atlantic is one of the skeptics. "If you want to stop social networking services from exploiting your likeness for advertising, you've got to start paying up," he writes. His logic:

Here's an alternative version of what Instagram could have done before Facebook purchased them. Instagram has, what, 100 million users? If they got $5 a month from 20 million of those users, they'd be looking at $300 million in quarterly revenue. That's a nice chunk of change when you have a baker's dozen employees. You think those guys could split more than a billion dollars a year and call it good. Or hell, make the user numbers an order of magnitude smaller: 2 million out of 10 million users. That's still $30 million dollars a quarter for 13 guys.

With that quarterly revenue of $300m, or $30m, Instagram wouldn't have needed to accept Facebook's billion-dollar acquisition offer, and it wouldn't need to turn its users into products.

But was that ever a realistic path? It's easy to suggest that services like Instagram could convince a meaningful single (or double) digit percentage of its audience to pony up for a monthly subscription, but there's little evidence that this is easy to pull off. If it was, Facebook and Twitter would have done it, right?

Don't hate the player, hate the game

Consumers like 'free' and to become popular in the first place, companies like Instagram provide a compelling service at the compelling price of $0. Eventually, when it comes time to deliver a return on investment, they turn to advertisers to monetize their vast audiences. So everything, including user experience, user data and user likenesses, has to be on the table because advertisers don't want a bunch of banner ads. They increasingly want native advertising units, so companies like Facebook and Twitter have obliged with ad offerings like Promoted Posts and Promoted Tweets.

That, put simply, is the name of the game. Instagram's Systrom may be apologetic while playing the our-terms-were-misunderstood card, but when he says "our intention in updating the terms was to communicate that we'd like to experiment with innovative advertising that feels appropriate on Instagram," he leaves out the obvious: the test subjects are often going to be the users themselves.

Are advertisers making a mistake?

The big question is whether advertisers are deluding themselves by thinking these "innovative" native ads, including formats that leverage user data and content, are really going to provide effective engagement on services like Facebook, Twitter and Instagram.

Wil Wheaton, who doesn't use Instagram, pondered the implications of the company's terms of service change in the context of how it might impact celebrities:

If someone Instagrams a photo of Seth Green walking through an Urban Outfitters, does that mean Urban Outfitters can take that image and use it to create an implied endorsement by Seth? What if the picture is taken by a complete stranger? Who gets final say in how the image is used? The subject, the photographer, or Instagram?

These questions may be of greater interest to celebrities, but they're certainly relevant to everyone. Which should be of interest to advertisers, who as they go 'native', will find themselves caught in the middle of the struggle between companies looking to monetize usage of their services and users who have very clear boundaries on the price they're willing to pay for 'free.'

Promoted Posts and the like may be attractive to advertisers looking to crack the nut that is social and jump on the native advertising bandwagon at the same time, but inevitably, it's clear that they'll have to come to grips with the fact that users have strong feelings about experiences built around their content.

Patricio Robles

Published 19 December, 2012 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

2343 more posts from this author

Comments (4)

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Hannah Norman, Digital Marketing Executive at Koozai Ltd

I thought this was a long time coming. They have to make money but it is quite amusing how terribly wrong its gone for them.

There is an excelent Parody that puts everything 'Instagram' in better perspective - http://www.youtube.com/watch?v=Nn-dD-QKYN4

over 3 years ago

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Neale Gilhooley

I'm not a legal person but the small print that caught the eye of users seems pretty hard to see any other meaning.

I'm not against Instagram making money but Facebook users have found their images appearing in ads for some distasteful products so fear is rife. However in most cases it was Ad Agencies (or others) ripping images off the Facebook as if it was a giant free photo library. I bet it is far more common than we imagine, high profile Advertisers are at higher risk of being caught.

over 3 years ago

Avatar-blank-50x50

Adam

To answer Patricio's question, I would say no. It is simply a backlash against terms and conditions that treat the user like a fool. Having said that, it's always good to remember the (now trite) maxim that "if you're not paying for it, you're the product being sold"...

over 3 years ago

Lauren Demarte

Lauren Demarte, Group Digital Project Manager at Sussan Corporation

It's naïve to think that Instagram and similar businesses aren't out to make a profit, and so they should. I wouldn't have a problem paying a small monthly fee to use Instagram; I already do so with Spotify, and the ad-free experience is well worth $10 a month.

However a large part of the backlash surely has to be around the lack of control users have over the use of their likeness. Even when you place a paid advertisement, you still sign off on a final proof before it goes to print/is deployed. Wil Wheaton makes a good point about implied celebrity endorsement, and on a smaller scale I can see why this is a concern for some users.

over 3 years ago

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