Running a service like Picasa Web Albums, Flickr, Instagram, Facebook or Google+ costs a lot of money: servers in data centers, electrical power, salary for engineers and other staff. All these free services need to make money, one way or another. The most common way is to monetize users data.
Matt Mullenweg sums it up nicely in an interview during LeWeb 2012 (2’30”), “Instagram primary users are not what we think of as users, it’s advertisers, and us are the product”.
Does an alternate solution exist? Yes, but you’ll have to reconsider the way you use internet services. As soon as you pay for a service, then you can consider that the primary goal of the service is to satisfy you, and not an advertiser or any third party.
This is exactly why Piwigo.com is not free. The user pays $39/year and our goal is not to sell your data or improve your “profile” for targeted ads. Our primary goal is to provide a service you appreciate (and buy).