I think Facebook will let them compete. They both cater to different needs: public (Instagram) and private (Facebook). This is good for Facebook as privacy conscious users can safely share using the Facebook Camera app and as long as their default settings are correct they don't need to worry about accidentally sharing publicly.
Yes , your right about the public and private aspect. I guess then from my original statement only the users from Facebook would initially compliment Instagram for more content.
What I like about Instagram is that many people put effort to put up creative photos. From a business view that could actually be in some sense used commercially cause they are nice and high quality. Something people may want on their T Shirt or select 12 images and make a calendar. Imagine like Getty Images or maybe a printing service like Vista Print.
