Facebook Responds to Anger Over Proposed Instagram Changes

But when Mr. Pinnix, 40, learned this week about changes to the company’s terms of service that would apparently allow his photos to be used as advertisements, he did not hesitate. He deleted his account and has not looked back.

“Many of the photos I take are of my wife and kids,” he said. “The idea that those could be used in ads without my consent is disconcerting.”

Concerns like those have been mounting on social networks this week as Instagram users reacted to the coming changes, part of a push by Facebook, which bought Instagram this year, to make money from the service.

On Tuesday evening, the complaints, which included angry Twitter posts and images on Instagram protesting the changes, prompted action. Kevin Systrom, a co-founder of Instagram, wrote a blog post saying the company would change the new terms of service to make clearer what would happen to users’ pictures.

“We’ve heard loud and clear that many users are confused and upset about what the changes mean,” he wrote. “I’m writing this today to let you know we’re listening and to commit to you that we will be doing more to answer your questions, fix any mistakes and eliminate the confusion.”

Eric Goldman, an associate professor at the Santa Clara University School of Law, said the latest skirmish between Facebook and its users was part of the sometimes uncomfortable dynamic between companies offering free online services and their eventual need to turn a profit from them.

“The interest of the site is never 100 percent aligned with the users, and the divergence inevitably leads to friction,” Mr. Goldman said. “It’s unavoidable.”

When Facebook announced the changes on Monday, it provided few details about how it would integrate advertisements and photos, other than to say that when the changes took effect on Jan. 16 they would not affect any photographs uploaded to the service before then.

That did not prevent unhappy users from threatening to take their portfolios of photographs to rival services, such as EyeEm, another social photo-sharing application. Many, including Mr. Pinnix, considered returning to Flickr, the former king of photo-sharing services, which is owned by Yahoo. In a stroke of lucky timing, Flickr had just released a new application for the iPhone that has drawn considerable praise from users.

The operators of services like Instaport.Me and Instabackup, which let people create copies of their Instagram photos, said they were seeing higher-than-average volume.

Linus Ekenstam, who helped found a service called Copygram that lets people back up their Instagram accounts and order physical prints of their favorite photos, said demand for the company’s free exporting tool had skyrocketed.

“It’s a thousand percent more activity than we’re used to,” he said. “Today is crazy.”

He estimated that 15 people per minute were using the exporting tool, and half a million photographs had been backed up.

Of course, that is a sliver of the expanding Instagram universe. The company has said that more than 100 million users have contributed more than five billion photographs to the service. But should that momentum slow, it could damage the plan for producing advertising revenue on the scale Facebook was counting on after spending $735 million in cash and stock to buy Instagram. The company also risks scaring off skittish brands and advertisers who would not want to anger Facebook or Instagram users who disagree with how their images are used.

The history of the social Web is full of cautionary tales of companies, including Digg and Myspace, whose users eventually got so fed up with how the companies meddled that they fled, leaving the companies in ruin.

In Tuesday’s blog post, Mr. Systrom sought to quell the mounting unrest and reassure users that the company would not be peddling photographs of children playing on the beach or friends partying in nightclubs to the highest bidder.

“To be clear, it is not our intention to sell your photos,” he said.

He said that the company also did not intend to put its members in advertisements.

“We do not have plans for anything like this, and because of that we’re going to remove the language that raised the question,” he said. “Our main goal is to avoid things likes advertising banners you see in other apps that would hurt the Instagram user experience.”

He did concede that the company might do something like promote a brand like Topshop and show Facebook visitors which of their friends already follow Topshop, blurbs that could include their user name and avatar.

Mr. Systrom also reassured Instagram users that they still “own their content and Instagram does not claim any ownership rights over your photos.”

“Nothing about this has changed,” he said.

Of course, Mark Zuckerberg, Facebook’s chief executive, said nearly the same thing in April: “We need to be mindful about keeping and building on Instagram’s strengths and features rather than just trying to integrate everything into Facebook. That’s why we’re committed to building and growing Instagram independently.” Since then, the company has cut off Instagram’s easy integration with Facebook’s rival Twitter and bound the photo service more tightly into Facebook.

Rebecca Lieb, an analyst with the Altimeter Group, said worries about Facebook changing for the worse had become common almost any time Facebook altered its site, whether in the design or in its privacy policies. It underscores the importance and omnipotence of the service in its users’ lives as much as it signals a distrust of Facebook.

“There’s always a reaction when Facebook does anything because the user base is so unbelievably large,” Ms. Lieb said. “But while what its users say can be very loud and very viral, what they do can be two very disparate things.”

“There are always Facebook users who say ‘This is the last straw,’ ” she said. But in the end, she said, “There’s not a lot of portability. Where would you go?”

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DealBook: Massachusetts Fines Morgan Stanley Over Facebook I.P.O.

Noah Berger for The New York TimesA Massachusetts regulator alleged that Michael Grimes, a banker at Morgan Stanley, coached Facebook on how to share information with analysts.

Morgan Stanley is paying for its role in the troubled stock market debut of Facebook.

On Monday, Massachusetts’s top financial authority fined the bank $5 million for violating securities laws, the first major regulatory action tied to Facebook’s initial public stock offering.

William F. Galvin, the secretary of the commonwealth of Massachusetts, accused the bank of improperly influencing the stock offering process. The regulator’s consent order asserts that a senior Morgan Stanley banker coached Facebook on how to share information with stock analysts who cover the social media company, a potential violation of a landmark legal settlement with Wall Street. While the banker never contacted the analysts directly, his actions, Mr. Galvin said, put ordinary investors at a disadvantage because they lacked access to the same research.

“The broader message here is we are going to use any means possible to enforce the strict code in place about giving out information,” Mr. Galvin said in an interview. “We want to get the message across that if Wall Street wants to get confidence back, they can’t disadvantage Main Street.”

The consent order did not name the Morgan Stanley banker, referring to him as a “senior investment banker.” But information in the regulator’s order indicated that it was Michael Grimes, one of the nation’s most influential technology bankers.

“Morgan Stanley is committed to robust compliance with both the letter and the spirit of all applicable regulations and laws,” a Morgan Stanley spokeswoman, Mary Claire Delaney, said. Morgan Stanley, in settling the case, neither admitted nor denied guilt.

Mr. Grimes, through Ms. Delaney, declined to comment. Although the banker was referred to in the order, Mr. Grimes has not been personally accused of any wrongdoing.

The Facebook public offering was one of the most highly anticipated debuts of the last decade. In the run-up to the offering, investor interest was robust, prompting the company to increase the size of the offering and raise the share price to $38.

But the I.P.O. quickly turned into a debacle. The first day of trading was plagued with problems. The shares quickly fell below their offering price. The stock closed on Monday at $26.75.

Shannon Stapleton/ReutersFacebook’s initial public offering in May was broadcast in Time Square.

Since the offering, Mr. Galvin and other regulators have opened wide-ranging investigations into Facebook and the banks that handled its debut. The continuing inquiries by the Securities and Exchange Commission and the Financial Industry Regulatory Authority are examining how the banks disseminated nonpublic information to big investors — and whether it conflicted with Facebook’s public disclosures.

Regulators are also looking into Nasdaq, the exchange where Facebook trades. They are questioning whether the exchange failed to properly test its trading systems, which faltered during the stock offering.

The Massachusetts regulator is focused on Morgan Stanley’s communications with analysts.

Shortly before the Facebook offering, analysts at several banks lowered their growth estimates for the social network. The move came after Facebook issued an amended prospectus, detailing a potential slowdown in revenue.

A Facebook executive, whose name was not given in the order but who was referred to as the treasurer, also reached out to analysts. Mr. Galvin’s order asserted that the executive, in private conversations with analysts, had provided additional information on the revenue. The order indicated that Mr. Grimes was personally involved in the decision to file the new prospectus and to have Facebook communicate with analysts.

“Morgan Stanley’s senior investment banker did everything but make the phone calls himself,” the Massachusetts regulator said in a statement, referring to Mr. Grimes. “He not only rehearsed with Facebook’s treasurer who placed the calls to the research analysts, but he also drafted the majority of the script Facebook’s treasurer utilized.”

Just 12 minutes after filing the amended prospectus with regulators on May 9, the Facebook treasurer phoned Wall Street research analysts from her hotel, according to the order. She had a 15-minute conversation with Morgan Stanley analysts, and then spoke with JPMorgan Chase and other banks.

The calls provided the analysts with additional information that did not appear in the amended prospectus, the order said. The conversations, for example, included “quantitative information regarding Facebook’s” second-quarter 2012 projections.

This behavior, Mr. Galvin said, crossed the line, violating the regulatory settlement on stock research that Morgan Stanley and other companies signed in 2003. The agreement limits the communication between bankers and research analysts and bans companies from influencing stock reports to try to bolster banking operations.

The Morgan Stanley case falls into a curious gray area.

Bankers spend months preparing companies to go public, a role that includes providing guidance on research analysts. In this instance, Mr. Grimes did not personally place the calls, which would have been a clear violation of securities laws.

In his testimony before the Massachusetts regulator’s staff, Mr. Grimes indicated that the bank had pushed for Facebook to file publicly an amended prospectus to avoid “the appearance” that the company was sharing information with a select group of clients rather than broadly with investors. Mr. Grimes, the order noted, consulted with Morgan Stanley and Facebook lawyers. Ultimately, Facebook’s chief financial officer, David A. Ebersman, e-mailed the company’s board to say that the new filing would “help us to continue to deliver accurate” information without “someone claiming we are providing any selective disclosure.”

Mr. Grimes, in testimony with the regulator, further defended his role. While the Facebook treasurer was making the calls, he noted that “I was far down the hall so I wouldn’t hear anything.”

Even so, Mr. Grimes, according to the consent order, e-mailed Mr. Ebersman to say that the Facebook treasurer “was a champ in the hotel tonight,” after the treasurer wrapped up the calls.

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