Instagram's Updated User Policy Potential Boon For Facebook - NBCNews.com

Instagram’s updated terms and conditions policy governing how photos posted on Facebook can be used in advertising created a firestorm of complaints from outraged users on Tuesday. While I understand their concerns about privacy issues, I have to give props to Facebook for expanding on yet another way to make money, and continuing its push to monetize its mobile users.

Instagram announced that it was updating its terms of use agreement, and part of it gives users no way to opt out of their photos being used "in connection with paid or sponsored content." Facebook, this year, purchased Instagram for $1 billion in cash and stock. Since Facebook’s stock has tanked, the value of the deal is now around $740 million.

Specifically, the updated terms, which take effect on Jan. 16, state:

“By displaying or publishing (“posting”) any content on or through the Instagram Services, you hereby grant to Instagram a non-exclusive, fully paid and royalty-free, worldwide, limited license to use, modify, delete from, add to, publicly perform, publicly display, reproduce and translate such content, including without limitation distributing part or all of the Site in any media formats through any media channels, except content not shared publicly (“private”) will not be distributed outside the Instagram Services.”

And here’s the kicker:

“To help us deliver interesting paid or sponsored content or promotions, you agree that a business or other entity may pay us to display your username, likeness, photos (along with any associated metadata) and/or actions you take, in connection with paid or sponsored content or promotions, without any compensation to you.”

Ouch!

Outraged users took to social media, including Facebook, to protest the move. However, Facebook, Instagram and investors sat back and watched Facebook’s stock rally a bit. By the closing bell, Facebook was up almost 4% to $27.73.

Still, Instagram must have felt the heat as the company’s co-founder, Kevin Systrom, released this statement late Tuesday:

“To be clear: it is not our intention to sell your photos," Systrom writes. "We are working on updated language in the terms to make sure this is clear."

Fellow finance writers pointed out that Facebook and Instagram are in the business to make money. Users have been quite spoiled by being able to use these services for free. I guess during all of their posting and uploading of photos, they didn’t stop to think that they were pretty much giving Facebook and Instagram the right to use their info as they see fit.

This latest move mirrors Facebook’s sponsored stories, which I wrote about earlier this year. This ad product, which runs in the newsfeed of subscribers, drew just as much scrutiny from users, and even spawned a lawsuit. It was eventually settled, and Facebook is pulling in about $1 million a day, with half of that coming from mobile users.

Investors have been after Facebook since its IPO in May to increase it revenues through advertising. It seems that Facebook and the phrase ‘monetizing users’ have become synonymous among Wall Street players as a way to make that happen. Facebook is stepping up to the plate and showing it can make millions of dollars from its billion subscribers.

Ad strategies, such as capitalizing on Instagram users, should help it monetize the most significant segment of its users â€" the increasing number of people who access its site via their smartphones and tablets. The efforts to monetize mobile users are paying off. Just this week, eMarketer released a report noting that unexpected growth from Facebook and Google will lead to a significant uptick in U.S. mobile advertising.

The research firm credits the success of so-called “native” ad formats like Facebook’s mobile newsfeed ads, for the uptick. Specifically, eMarketer expects overall spending on mobile advertising in the U.S. to rise 180% this year to top $4 billion. It expects that number to rise to roughly $7 billion next year. Facebook’s cut of that this year is about $339 million. It could reach $851 million next year. That compares to $2.1 billion Google should rake in this year, and $4 billion it should reap next year from mobile ads.

In terms of market share, Google is number one with about 55% of the market. Pandora, which is expected to earn 8.7% of the U.S. mobile ad market this year, is number two. While it is still projected to hold the number two spot next year, eMarketer expects its share to drop to 7.9%.

So, naysayers who question Facebook’s staying power may be having second thoughts. We’ll get more of an idea about the company’s revenue growth next month (Jan. 23) when it reports fourth quarter earnings.