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Instagram is used on an iPhone Monday, April 9, 2012, in New York.Karly Domb Sadof/The Associated Press

A hugely popular mobile app has been thrust into the centre of one of the biggest battlegrounds in online commerce: A company's control over its users' data.

Instagram, a photo-sharing application for smartphones that was purchased this year by Facebook Inc. for $1-billion (U.S.), prompted anger from thousands of its more than 30 million users this week when it announced a change to its terms-of-service agreement – the virtual document every user must agree to in order to use the app. Under the new terms, which come into effect Jan. 16, Instagram can effectively do anything with its users' photos – including, many of its users fear, sell them to corporate advertisers without asking permission or offering compensation to the people who took the photos.

The vocal outcry over the changes has highlighted the challenges consumers and companies face in navigating an increasingly digital world, where a person's reasonable expectation of privacy using one of the Web's many cost-free services must be balanced against a company's aim of turning a profit. Companies such as Instagram and Facebook have been struggling in recent years to monetize the vast amount of personal data their services inevitably collect – data that some advertisers are willing to pay millions to exploit.

The update to Instagram's service agreement makes very few practical changes to the document.

Rather than sell users' photos, the new terms are likely aimed at allowing the service to use pictures for so-called "sponsored" posts, in which an advertiser can attach its name to a photo that's related to the corporate brand.

Facebook has seen social media storms after making similar changes, but Instagram may have an even rougher ride because of its myriad viable competitors. The company also received criticism for the somewhat opaque way in which it explained the changes to its service agreement – a criticism that has often been levelled at the photo-sharing app's parent company.

"Facebook wants to make these changes, and the reason to make these changes is because sponsored advertising posts are the only ones making any money for Facebook," said Sydneyeve Matrix, an associate professor of media at Queen's University in Kingston, Ont. But the very nature of the content on Instagram, she added, makes this particular policy change a tougher sell.

"The most personal status update is a photo. There's something special about the photograph that just triggers our privacy alerts."

Shortly after Instagram announced the changes to its terms of service, many users began posting "farewell notes" to the company – photos of letters announcing they were leaving the service for good.

"The only way to not have them sell your photos is to delete your account, there's no other way to stop them from doing it," said Kathryn MacKay, a recent Instagram user who decided to switch to Flickr, a competing service owned by Yahoo. (The timing of the Instagram service terms change was particularly unfortunate for the company, having come not long after Yahoo released an entirely upgraded version of Flickr for mobile devices).

On Tuesday, Instagram responded to the onslaught of criticism, posting a note on the company blog clarifying the changes.

"Our intention in updating the terms was to communicate that we'd like to experiment with innovative advertising that feels appropriate on Instagram," wrote Instagram co-founder Kevin Systrom. "Instead it was interpreted by many that we were going to sell your photos to others without any compensation. This is not true and it is our mistake that this language is confusing. To be clear: It is not our intention to sell your photos."

If history is any guide, defectors are unlikely to put any real dent in Instagram's overall usage numbers. Its parent company, Facebook, tends to prompt similar complaints every time it updates its privacy policies, and yet the social network continues to grow. Other companies, ranging from Sony Corp. to Google Inc., have also been the subject of similar criticism – without much impact on user growth.

Nonetheless, there is a strong correlation between such privacy controversies and companies that offer "free" web products – apps and services that don't cost anything to sign up for, but use personal information to generate ad revenue.

"Instagram isn't going to sell your photos, Facebook is going to use them to access data to further help them push more and more targeted ads," said Kerry Morrison, CEO of Endloop Mobile, a Toronto-based app developer.

"To receive the joy I get from a service like Instagram, that's the price I have to pay – and it's the same price on Facebook and a hundred other services."

Are you upset about changes to Instagram's user agreement? Will you stop using it? Leave a comment to share your thoughts.