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It's getting far too common to see intrusive privacy policies back-tracked by Facebook (NASDAQ:FB).

The latest privacy shenanigan involves Facebook's Instagram, a photo sharing service acquired for $1 billion this past summer in a bid to bolster Facebook's mobile business.

Make no mistake, Facebook is firmly planted in the era of money making.

The IPO debacle all but guaranteed money counters would play a bigger role in Facebook's future. And, the Instagram privacy update - no matter how ill-suited - is just the latest in an ongoing series of revenue driven decision making.

However, those decisions have to be tempered by common sense, because the company walks a fine line between users and profits.

If you're looking around the room and you can't find the patsy, you're the patsy.

When it comes to free social media sites, users are the patsy.

Without revenue producing user generated content, sites like Instagram, Twitter, Linkedin (NYSE:LNKD) and, yes, Facebook would be shuttered tomorrow. Users have to recognize there is no free lunch and social media sites have to realize alienating content creators is at best counterproductive and at worst dumb as hell.

While no one is going to close their Facebook account over this latest dust up, you can bet some closed their Instagram accounts. That translates Facebook losing some goodwill built up following Mr. Zuckerberg's brilliant earnings call mea culpa.

Instagram's pain is others gain.

Yahoo's (NASDAQ:YHOO) Google-trained (NASDAQ:GOOG) CEO Marissa Mayer, who joined Yahoo earlier this year, has been waiting for just such a chance to re-ignite buzz for its Flickr photo sharing site. Serendipitously, Flickr recently rolled out a much more robust editing platform aimed firmly at targeting ... wait for it ... Instagram.

Of course, Flickr isn't the only option for users seeking a kinder, gentler photo service. Buzz on a Budget's Melanie Burger outlined a list of choices here.

Facebook will undoubtedly engage in damage control. They'll lose users, who will end up with Flickr. But, Facebook may also find backing away from some of the more onerous policies lets them profit from subtler ones.

If so, investors considering selling Facebook post-privacy blunder might want to reconsider, because tailwinds suggest shares are heading higher, not lower.

One such tailwind is user engagement. Consider the following chart from Google Trends. Facebook search volume is at all time highs this quarter, suggesting engagement is bullish for ad revenue.

(click to enlarge)

It's also important to realize shares have marched steadily higher this quarter despite high profile lock up expirations. Short sellers bet heavily those expirations would push shares lower as insiders sold, but they've been forced to cover instead.

Until bad news is seen as bad again, or good news isn't rewarded, shareholders may find it more profitable to stick with Facebook through earnings, rather than sell it now.

Regardless, those who have a nice gain from purchases in Q3 can play defensive with a trailing stop loss. And, for those inclined, now might be a good time to consider Yahoo again, particularly if it can get bought on sale over the next month or two.

Source: How To Play Facebook's Instagram Privacy Bugaboo