Business Matters: If Big Radio Had Pandora's Royalty Rate, It Would Owe Billions
Business Matters: If Big Radio Had Pandora's Royalty Rate, It Would Owe Billions

If your label or band uses the photo-sharing app Instagram, your photos aren't being seen by as many people this week. The larger question is whether or not they're coming back.

Instagram has lost nearly a quarter of its daily users in a possible customer backlash due to a change in the company's terms of service: Its daily active users were 16.4 million two days after the change in terms of service were announced on December 17, according to stats available at AppData, and had fallen to 15.1 million on December 24 before stabilizing at 12.4-12.5 million since December 25.

A drop in daily usage on or around Christmas can be seen at other apps such as Farmville, Candy Crush Saga and Spotify. But AppData tells the New York Post, which first reported Instagram's traffic drop, that it is "pretty sure" the decline is due to Instagram's change to its terms of service on December 17. AppData tracks app usage with a Facebook login, so it is good for tracking trends, although its numbers are not completely accurate.

Facebook told CNBC AppData's data is inaccurate and it continues to see "strong and steady growth" in both registered users and active users of Instagram.

Investors were taking the Post's report seriously Friday morning. Facebook was down 2.6% to $25.38 and had lost $1.4 billion of market capitalization. Facebook bought Instagram in April for $1 billion in cash and stock.

The change in Instagram's terms of service was interpreted by many people to mean the company could sell user's photographs -- for use in advertising campaigns, for example -- without paying the owners. The company changed the wording two days later and attempted to put users' minds at ease by explaining it had no intention of selling their photographs. By that point, however, Instagram may have lost the trust that is so valuable to social media companies.

One beneficiary could be competing online photo service Flickr. AppData says Flickr's daily average users rose by 20,000 to 80,000 on December 20 and remained there until falling back to 60,000 on Christmas Eve. After a rise to 70,000 on Christmas Day, Flickr has remained at 70,000 daily active users.

So what exactly happened, and will Instagram users return? Here's one scenario: Instagram users didn't rush to separate themselves from the beloved service but instead took a few days to mull over the alternatives. Some people may have left Instagram for good, but part of the recent drop in traffic stems from a seasonal fluctuation that has affected similar photo apps.

According to Google Trends, Google searches for Instagram peaked on December 18, the day after the changes to the terms of service were announced. Many searches came from people with an interest in severing their relationship with Instagram: " delete instagram" was the 9th most frequent related search. Tempers quickly cooled off, however, and "delete instagram" search traffic dropped nearly 80% over the next two days.

Other photo apps have also seen a seasonal drop. Recall that Flickr experienced a Christmas dip in traffic, according to AppData. Hipstamatic went from 170,000 to 150,000 daily average users in the Sunday-to-Wednesday that included Christmas. Snapsneed has remained at 20,000 daily average users since falling from 30,000 on December 20th.

The true test for Instagram will be its activity levels in January. Once the rush of New Years Eve photos has passed and people go about with their typical, daily lives, how many of them will go back to using Instagram?