Instagram and the Challenge of Effective Online Terms of Service Management

January 28, 2013

Instagram Terms of UseRecently, the online sharing service for photographs, Instagram, modified its terms of use.  Those changes so alienated its customers that the company suffered a devastating adverse impact on its business.  Online terms of use must be effectively managed in order to foster successful business operations.

In December 2012, Instagram notified users that it was changing its terms of service and privacy policies.  The company announced that it reserved the right to license all photographs posted by users on the Instagram Web site to any third party for any purpose.  Customers vigorously objected to the new policy.  Instagram ultimately elected not to modify the terms of service, however, despite relenting to customer concerns, the company lost approximately half of its users.

Instagram’s experience illustrates the impact online terms of service can have on the relationship between a business and its customers.  Enterprises should manage their online terms of service, and all modifications to those terms, consistent with a few key principles.

Compliance with all Applicable Legal Requirements

All organizations operating Web sites and other online activities should publish and maintain online terms of service and policies compliant with the applicable legal and regulatory obligations imposed by all jurisdictions in which they operate.  Those terms and policies should be updated regularly in order to accommodate evolving legal obligations.

Thorough Consideration of Customer Impact

The likely impact of terms of service on customers and other parties should be carefully evaluated prior to implementing or modifying those terms.  Likely customer reaction to the terms should be assessed in advance.

Effective Balancing of Company and Customer Interests

Every effort should be made to balance the interests of the company and its customers as the terms of service are developed and implemented.  Terms that aggressively favor the interests of the business at the expense of the customer should be avoided.

The Instagram experience suggests that organizations should not treat their online terms of service lightly.  They should not assert or reserve rights at the expense of their customers simply because they have the power to do so.

Instead, enterprises should attempt to achieve a reasonable balance between protecting their key interests, while also empowering their customers.  Terms of service associated with Web sites and all other online operations should reflect that balance.  As Instagram has learned, businesses that are perceived by consumers to be overstepping their legitimate interests can suffer significantly in the marketplace.