Instagram’s new terms of service: How Facebook got everything wrong

The internet exploded with indignation yesterday when New York Times noticed Instagram’s new terms of service update included giving Instagram the right to sell your photos without paying you or even notifying you.

Cnet notes this basically turns Facebook (which owns Instagram) into the biggest stock photo agency in the world—they give the example that a hotel in Hawaii could write Facebook a check to use your Instagram photo of your kids playing on the beach for its marketing campaign. You’d know nothing about it until you saw your kids in an ad next time you were looking to book a vacation.

It didn’t have to be this way. But it probably became inevitable when Facebook bought Instagram last year.

As soon as Facebook’s billion-dollar Instagram acquisition was announced, we joined in on speculating about Instagram conspiracy theories. At the time I argued that Facebook’s motivation behind the huge purchase could have to do with the fact that way more people geotag their pictures with location data on Instagram than they do with regular Facebook photo uploads. Since Facebook had openly stated that it was betting on mobile for its future revenue streams and it was getting ready to go public at the time, it seemed like Facebook would make a revenue play by offering users display ads and deals within Instagram based on their locations and interests.

That strategy of charging companies for inbound access to its user base would have been way better than the strategy they seem to be pursuing, which is essentially the reverse—charging companies for outbound access as it takes the content users produce and exploits it for sale outside the social network.

Yesterday Gawker invoked the adage that originally sprouted up on Metafilter to describe the tension around revenue and social networks: “If you’re not paying for it, you’re not the customer; you’re the product being sold.” But again, it didn’t necessarily have to be this way. In the model I described above, Instagram’s users would still be its customers and Facebook would make money by charging advertisers access to them—essentially the same way the New York Times makes money. But instead of selling advertisers into their user base, Facebook is choosing to sell Instagram users out to their advertisers. It’s backward, and it’s the best way to generate fast and massive ill-will.

Forbes and Cnet have both noted that Instagram’s new terms of service don’t necessarily mean Facebook will pursue this revenue stream—only that they have the right to. But come on—Facbeook is a publicly traded company with a mandate to grow. Did anyone seriously think they were going to spend a billion dollars on Instagram and not try to make any money with it?

Unless Instagram changes its tune, users have until January 16 to delete their accounts. After that, they can expect to see their personal photos in ads all over the place.