“We may share User Content and your information (including but not limited to, information from cookies, log files, device identifiers, location data, and usage data) with businesses that are legally part of the same group of companies that Instagram is part of, or that become part of that group (“Affiliates”). Affiliates may use this information to help provide, understand, and improve the Service (including by providing analytics) and Affiliates’ own services (including by providing you with better and more relevant experiences). But these Affiliates will honor the choices you make about who can see your photos.”
Basically reading the above section from the new policy it sounds like to me that they are using this information to better target advertising. The real question is does this mean your information will be in the privacy nightmare that is facebook.
The instagram blog claims that this is going to be a great thing for you, reducing your spam and relibilty issues.