At issue is whether users' photos can be part of advertisements, on and off Instagram. The mobile photo-sharing company said in a blog post Tuesday that it has no plans to put users' photos in advertisements.
That said, Instagram maintains that it was created to become a business and would like to experiment with various forms of advertisements to make money.
The new policy will take effect Jan. 16.
Instagram, the popular mobile photo-sharing service now owned by Facebook, is the target of a storm of outrage, much of it on social media, after changes in its user agreement give it broader rights to use its members' photos in advertisements.
"This means we can do things like fight spam more effectively, detect system and reliability problems more quickly, and build better features for everyone by understanding how Instagram is used," the blog post said, adding that the updates also "help protect you, and prevent spam and abuse as we grow."
But the biggest change riling users and privacy advocates is Instagram's new assertion that it may now receive payments from businesses to use your photos, user name and other data "in connection with paid or sponsored content or promotions, without any compensation to you."
Facebook, which bought Instagram in September for $740 million, already uses your photo and other information about you to show advertisements to your friends. Say you've "liked" Samsung Mobile. Facebook might then show your friends ads for Samsung and include the fact that you "like" the company's page. Your profile photo and name would appear with what Facebook calls "sponsored stories."
Instagram's new policy, which takes effect Jan. 16, suggests that Facebook wants to integrate Instagram into its ad-serving system.
Under the current policy, Instagram is not as explicit in saying how it uses its members' photographs. But the company already has the right to use people's public content as it sees fit, though the photographers keep so-called "ownership" of the photos. The new terms make it clearer that Instagram could use your photos to market to your friends.
"These services are publicly advertised as `free,' but the free label masks costs to privacy, which include the responsibility of monitoring how these companies sell data, and even how they change policies over time," said Chris Hoofnagle, director of Information Privacy Programs at the Berkeley Center for Law & Technology.
The fast-growing service has become a popular way to share photos from cellphones. The Instagram app, available for the iPhone and Android devices, offers a variety of filters to give photos a retro feel or other look. Although many other apps also offer filters for enhancing photos, they don't offer the sharing features and community aspects of Instagram.
Instagram has had a loyal following since before Facebook bought it. The purchase worried some of the earliest fans of the service, who feared Facebook would swallow up their beloved community.
Users must accept the new terms when they go into effect or leave the Instagram.
Twitter users were vowing to cancel their Instagram accounts. They complained that the new terms would essentially let the service sell people's photos for ads.
Instagram doesn't currently run any ads. As of now, the free service has no way to make money and brings in no revenue to Facebook.
"As we have said in the past, we are continuing to evaluate when, how, and in what form advertising inside Instagram plays a role in creating value for users and brands alike," Facebook spokeswoman Meredith Chin said in an email.