Expect Facebook to Lose a Ton of Money on Instagram

NEW YORK (TheStreet) -- I tend to agree with the way Mark Zuckerberg handles most things at Facebook (FB).

But I'm beginning to wonder what in the world he is doing with Instagram. Maybe he's not doing anything. The other day a friend suggested that because it's newly acquired, CEO Kevin Systrom might still be calling the shots at the sociophoto network. (When somebody at CNBC starts using that new word, remember where you heard it first.)

I scoff at the notion of Zuckerberg not taking immediate control of Instagram, but it's apparently not all that far-fetched. I understand that's the way things rolled in the early stages of the Google ( GOOG)/ YouTube integration.

If Zuckerberg is saying, we're not going to interfere, keep doing what you're doing, he better channel Steve Jobs and rethink the strategy.

In the span of just over a week, Instagram or Facebook or some combination of the two made a pair of bonehead moves.

I discuss the first one -- taking full Instagram functionality away from Twitter -- in Facebook Acting Like a Twit On Instagram. TheStreet's Chris Ciaccia nicely covers the most recent bungle -- Instagram's terms-of-use snafu -- in Facebook's Instagram Catches Hell From Users on Privacy Changes.

Let's take this slowly . . . Facebook made a massive mistake making such a large bet on and apparently having so much confidence in Instagram.

Here's where I think Zuckerberg -- whether he's calling the shots or not (and he must have at least some broad oversight) -- is getting it wrong: He's putting Instagram in the same league as Facebook.

Dissing Twitter was a bold, but bad move. I explain why in the first of the two above-linked articles. And pulling a fast one on privacy doesn't fly when you're not special. Facebook can do this -- it has several times -- because it's Facebook. That's why the social network never missed a beat after the many times Zuckerberg played fast and loose with privacy.

Facebook is sticky; it's addictive. Most of its users aren't going anywhere and, for every one that does leave, several others, pets and infants included, take that spot.

When you're Facebook, you can say something really, really dumb such as:

You agree that a business or other entity may pay us to display your username, likeness, photos (along with any associated metadata), and/or actions you take, in connection with paid or sponsored content or promotions, without any compensation to you.

And then backtrack by saying, That's not what we really meant! As is often the case, David Pogue summed up that inanity quite well in The New York Times.

Bottom line, there's not enough there there with Instagram to give it the license Facebook has to play chicken with its user base.

What does Instagram do? Nothing that's all that exciting. It takes the idea of adjusting the tint or contrast on your old television set and applies it to "photography" on mobile devices. Talk about ZERO barriers to entry. Twitter had to rush photo filtering out last week and it's pretty close to being as "good" as Instagram is now.

We're getting to a point with apps where only the best, most stimulating, most versatile and most useful will survive. One-trick ponies such as Instagram will fall by the wayside.

What's the future there? Allow a brand to promote a picture? Please -- Instagram is the glorified Foursquare of photo streams in the making.

I'm not sure why I ever used Instagram. Sucks to admit this, but I think it was because everybody thinks it's so cool. I'm guessing that after millions of Instagram users freaked out Tuesday they asked themselves the very same question -- why do I use this app?

The answer will ultimately spell Facebook's first major writedown as a public company and Zuckerberg's second biggest mistake after focusing on mobile two years too late.

--Written by Rocco Pendola in Santa Monica, Calif.

Rocco Pendola is TheStreet's Director of Social Media. Pendola's daily contributions to TheStreet frequently appear on CNBC and at various top online properties, such as Forbes.

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