Instagram: a case study on one of the PR lessons from 2012.

It all started with what could and should have been a fairly reasonable change to their privacy policy…if you believe their explanation.
On December 18 Instagram announced via its blog that it was proposing changes to its privacy policy and Terms of Service which would take effect on January 16 2013. Briefly, it said that unless users deleted their account by then they had by default agreed to allow the company to share information about them with Facebook, its parent company, as well as other affiliates and advertisers.
So far, so fairly usual in the online world. The problem was what they wanted to share and on what basis.
The terms proposed Instagram being able to send on users’ username, likeness, photos (along with any associated metadata), and/or actions they had taken for use, “in connection with paid or sponsored content or promotions, without any compensation to you”. Basically, passing on their personal photos and dats for possible use in conncetion with ads without being given a penny.
The backlash wasn’t long coming and was vehement. Here’s how the BBC website reported it. Before long there were threats of mass account closures from regular users and, importantly, power users followed by many others, especially celebrities for whom control of their image is a major financial and PR consideration. So basically it was an online PR firestorm of their own creation.
Within 24 hours Instagram had seen the furore and realised it needed to try to reassure its users or it would have a lot fewer of them to monetise. So co-founder Kevin Systrom posted this fresh blog post saying they aren’t planning to sell users’ photos, anyone who thought that had unfortunately misread the legal language, but it was Instagram’s fault that it wasn’t clear from the start.
Importantly, he also said they were listening to the feedback and were going to modify specific parts of the terms to make it more clear what would happen with users’ photos. He went on to detail their intentions and the reason for them.
Did this extinguish the firestorm? Sadly not. Why? By now users’ mistrust of the company was so high that the reaction of many key players, including power user National Geographic, was to say ‘fine, but we want to see the detailed changes before we trust you again’. Some, including National Geographic, suspended posting their accounts as a sign of their continued unhappiness.
So Instagram went away again to have another think. Sooner after it announced that it was reverting to the original terms of service and if in future it planned to change them it would consult with users about the proposed changes before putting them in place.
So everybody’s happy now? No, not really. Why? Because their trust in the brand has been seriously dented. And, as we all know, trust, like reputation, is easily lost and rebuilt slowly and with difficulty.
Instagram, of course, wasn’t the only brand to suffer reputational damage in 2012. Barclays, RBS, HSBC, Starbucks, Amazon, Apple and Google were among the high-profile companies affected by events entirely of their own creation. Self-inflicted and entirely avoidable injuries.
Instagram’s was one of the worst because they failed to take sufficiently into account how personal the service they provide to their users actually is — its place on what marketers call the ‘my continuum’ (i.e. a hairdresser provides such a personal service that you refer to them as “my hairdresser” while, say, an online retailer is more distant and impersonal, so not referred to as “my”).
Users trust Instagram with their personal photos, some of them very personal — like shots of their newborn baby or wedding — so in threatening to hand on these photos to third parties it was inadvertently making a threat to very personal possessions of its users.
It also failed to take into account quite how competitive its market had become and how low the barriers to exit are for users. Though clearly the dominant player, it quickly found how loosely tied users felt to it (compared to,say, Facebook versus the threat of Google+) and how quickly they were prepared and able to take their custom to rivals. 
I suspect this misjudgment may have been by Facebook managers, who are used to the cosy notion that without the ability to easily download and move the data and friends Facebook users have spent years adding to the site they feel compelled to stay simply by the thought of the massive ‘transaction costs’ (hassle) of shifting it all to a rival).
It was a similar sudden appreciation of how competitive its market was and how low the barriers to exit (switching) were that forced Starbucks in the UK to change its policy on paying UK Corporation Tax. 
A Parliamentary Committee named and shamed it among several international companies which generated large revenues in the UK but didn’t pay much, if any, Corporation Tax because of their use of indefensible transfer charges to export profits to jurisdictions with lower rates of tax on them.
The root cause which links these and all the other PR disasters cited above is an imbalance in their perception of the correct balance between meeting the needs of shareholders (who they have a corporate fiduciary legal duty to) and their other key stakeholders, in particular their customers, who perceive that they are owed a moral duty extending beyond any legal-contractual one.
Balancing their often-competing needs is not always easy, but it’s easily seen that if you work exclusively in the interests of shareholders (i.e. by maximizing profits) you can easily be working against their long-term interests as customers may defect to rivals, reducing sales and ultimately profits. Equally, if you only do what customers want, your profits may be few and far between and shareholders will take their capital elsewhere.
So how to find a balance?
Part of the answer, I suggest, is in discovering what your Reputational Elasticity of Demand (RED) is and how far that allows you to consider your shareholders versus your customers.
So what is RED and how is it made up and measured? That and more will be in my next blog post.