Is Facebook the Next Instagram?

It's surprising how quickly people can turn these days.

Facebook's (NASDAQ: FB  ) Instagram is apparently suffering from defections in light of its botched terms of service update.

As word spread that the popular photo-sharing service could sell photos uploaded to the site -- something that Instagram later went on to clarify that it would never do -- shutterbugs turned elsewhere to spread their digital eye candy.

According to AppData, which tracks Instagram traffic through Facebook, usage peaked at 16.4 million active daily users just as it was rolling out its updated policy change. Traffic dropped to just 12.4 million active users on the day after Christmas.

Now, there's plenty of skepticism about the nearly 25% plunge in traffic. A popular knock -- raised by The Next Web today -- is that several popular apps suffered a dip in traffic. Even darling apps Pinterest and Spotify slipped on Wednesday.

A seasonal dip makes sense. Algorithmic changes happen.

The data also seems fishy because Instagram actually reverted back to the earlier, less-offensive terms of service on Dec. 21. Any ire was misplaced.

However, it's still a surprise. Flurry Analytics shows that a whopping 17.6 million Android and iOS devices were activated on Christmas Day. It's a new record. Shouldn't new owners be posting holiday pictures on Instagram?

We don't know. However, what we do know is that Internet users can be fickle. Once they leave, they don't come back. Just ask Facebook buddy Zynga (NASDAQ: ZNGA  ) . Once players begin dropping off on FarmVille, Mafia Wars, or Draw Something, the trend is practically irreversible.

Tech reporters have been invited this month to check out the redesigned MySpace. It doesn't matter. Consumers won't go back. New Internet users that weren't around when MySpace peaked don't want to be seen as warming up to a dinosaur.

AOL (NYSE: AOL  ) has been posting sequential quarterly declines in premium users for nearly a decade. That's never going to stop. It doesn't mean that AOL is dead. In fact, AOL has been one of this year's biggest surprises, with the stock more than doubling once you factor in its generous one-time distribution. However, the flagship service itself -- like MySpace, aging Zynga games, and perhaps even Instagram -- may be toast.

The key here is to see if the data still shows net defections from Instagram in a week or two after the holiday lull passes. My gut instinct is that traffic will bounce back, especially since Pinterest -- the logical beneficiary of Instagram's demise -- also took a slight hit on Wednesday.

However, if Instagram isn't back to where it was by mid-January, move on. A new photo-sharing service will rule the roost.

If that is the case, let's hope that Facebook learns its lesson. Taking a hit on a $1 billion investment is small potatoes for a company that went public valued at $104 billion. The real takeaway here if Instagram has peaked is that the leading social networking website can go too far in monetizing its site.

Every crowd has its last straw, and those straws can come together in the form of a scarecrow.

After the world's most hyped IPO turned out to be a dunce, most investors probably don't even want to think about shares of Facebook. But there are things every investor needs to know about this company. We've outlined them in our newest premium research report. There's a lot more to Facebook than meets the eye, so read up on whether there is anything to "like" about it today, and we'll tell you whether we think Facebook deserves a place in your portfolio. Access your report by clicking here.


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  • Report this Comment On January 01, 2013, at 7:25 PM, chris293 wrote:

    How can you delete FB, or some other services that say they will help you, but then want Money?

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