Will Investors Abandon Facebook Over Instagram?

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When Facebook (NYSE: FB ) acquired Instagram for $1 billion , many investors wondered if the company had overpaid for the photo-sharing app. Some argued that Facebook had to pay top dollar for the company to prevent its owners from seeking other buyers. Apple (NASDAQ: AAPL ) was among the companies that were rumored to be interested in acquiring Instagram.

Those firms are surely glad they missed out on the opportunity to buy Instagram. The app -- which has 43 million MAUs (monthly active users) -- lost 3.5 million of its daily active users, dropping from roughly 16 million to 12.4 million DAUs. According to AppData , the decline occurred over the last seven days.

More than one week ago Instagram announced that it would place user images in advertisements without consent. Facebook is reportedly behind the policy change , which enraged users all over the world -- including pseudo-celebrities like Kim Kardashian.

"I just don't think they should have the right to sell [our photos] to advertising companies on our behalf," Kardashian told TMZ . "What if we don't want to advertise what they want?"

While she may not be the most reputable person to complain about unwarranted advertising (she receives $10,000 every time she tweets about select products), Kardashian has a point. No company should be allowed to take users' image and drop them into advertisements. It is wrong, it is borderline illegal and it should not be allowed.

Nonetheless, this is the world that consumers (and celebrities) are forced to live with now that social media has taken over. Nothing is private.

Will this really hurt Facebook? The stock is currently down more than two percent. Before investors cry a river, however, it is important to remember that Facebook has one billion users worldwide. They are not going anywhere. There may be alternatives like Google+ (NASDAQ: GOOG ), but no one cares about them. They may survive but they will not top Facebook any time soon.

For that to occur, one of two things would have to happen. Either a competitor would have to improve upon everything Facebook created and produce a true revolution within social media, or Facebook will have to become so unbearable that users cannot help but abandon the service. Until then, the social network will continue to thrive.

Some traders believe that this could present an opportunity for Yahoo's (NASDAQ: YHOO ) photo-sharing service, flickr, to make a comeback. Investors should not get their hopes up. According to AppData, the service lost 20,000 of its DAUs over the last seven days. Only 60,000 DAUs remain, along with 400,000 MAUs. With numbers so low, Facebook and Instagram do not have anything to worry about.

After enduring a number of complaints, Instagram announced on December 20 that it would go back to its former privacy policy and promised that it would not sell users' images to advertisers. That adjustment did not prevent the photo-sharing app from losing a few million users.

Follow me @LouisBedigianBZ

(c) 2012 Benzinga does not provide investment advice. All rights reserved.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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