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Since I posted my last blog entry
on where I think the photo-sharing and photo agency markets are going
(and that they will inevitably converge), I had more feedback from
non-photographers than any of my other postings. Many emails came
from computer programmers who are also building AJAX applications (the
fundamental building blocks for how Flickr works), and are wondering
whether they have a viable business model (not being photography). I had
a few emails from people in the investment community (some of whom I've
had contact with before from other postings on the subject), but the
most surprising emails were those from start-up companies who are also
building photo-sharing sites with their eyes on flickr. No less than five
"viable" (IMHO) start-ups are doing much the same sort of thing (well,
"the same, but different") with hopes of being the first photo-sharing
social-network site to double as a licensing agency.
Oddly, the one question that everyone had in common was this one,
(paraphrased)
"Will people accept having their photos online to sell?"
The context, of course, is that social-networking sites are not
traditionally places where people look to sell their photos. Still, I
think people's attitudes about this are similar to that of placing online
ads on their own websites. They will not only accept it, but most will
embrace it because there's money to be made. If what is demanded of them
is very simple and straightforward, I believe they will participate. And
as smart people figure out how the optimize their returns, a new economy
will evolve much like how online advertising was transformed by Google.
But, this won't come right away; it must evolve incrementally,
because there are too many unknowns that have to play out, such as
pricing models, liability concerns, and what's the middle ground that
will appeal to both buyers and sellers of imagery.
I believe this will come about in much the same kind of two-pronged
approach that Google followed, at least in the following summary: Google
started rising at a time that didn't look so good for online advertising:
the tech bubble had burst, online rates had long peaked at ridiculous
levels without a track record to justify them, and consumers were sick
and tired of pop-up ads, pop-under ads, and otherwise invasive and
unrelated flotsam of ads from the sites they visited. It didn't
help that many ads were also the source for spyware and such. And here
comes google with their innocuous text-only ads that sit quietly on the
side of the page.
At first, their model was to place ads on the search results
pages. Then, as their business grew, they exploited the model where
other people could put ads on their pages. (The "Adsense" model that is
now replicated by everyone in the online ad business.)
I believe that photos have similar opportunities (not necessarily to
the same scale of ad revenue generation). Photo licensing is currently
done using a traditional model where buyers go to online agencies
or directly to photographers. However, as per my previous posting, I
believe that it is inevitable for other photo-related sites to get into
the licensing business, which will change the fundamental landscape
for how licensing is done. Because I have always believed that the
photo industry has vastly underestimated how much consumers really
participate in both the photo buying and selling economy, the
migration of consumer-oriented photo sites toward a licensing model is
a perfect fit. (My first $100K of sales was generated in photos before
I ever really took photography seriously as a business. And that's what
prompted my early articles on the subject and business proposals to
various photo companies.)
Phase One of this business will be where a photo-sharing site merely
allows visitors to license images directly from the site. Phase Two
will involve the distribution of the same photo assets to other sites,
much the same way online ad sales are hosted (or "published") on other
websites. When and how the second phase happens for photos depend on
how these early adopter sites implement this model. As shutterfly's
experiment demonstrated with their "event-photographers-only" approach,
it's easy to get wrong. For the sake of discussion, I'm going to assume
that the approach ultimately adopted is the one I've suggested in the
past: make it pure and simple by giving the user a toggle for setting
whether his photos are (or aren't) permitted to be "sold" under the
general terms and conditions provided by the site. The pricing should
be set by the user for a small set of tiers, with a "default set" to be
used in the event that the user wants to defer this decision. Obviously,
I'm hand-waving a little here, but I'll pick up on it again later.
If provided with a very simple and easy way to opt in or out, the
larger majority will opt in, almost for the sole reason that people put
online ads on their websites: money. Instantly, the photo-sharing
site has morphed. Flickr would be to the licensing business that Google
is to the advertising business. Sure, Google looks like a search engine,
but they make money through ad sales. Similarly, Flickr looks like
a photo-sharing site, but they (could) make their real money through
licensing.
Why risk it? As my previous article said, it's inevitable, largely
because it involves very little technical expertise or investment, and
the financial returns are too interesting to not bother trying. So, what
is that "investment?" Oddly, not much. To get a sense of this, one
of the start-up companies that emailed me is a two-person team, only one
of which is a programmer (whose 18 and never had a real job). You'd never
know it by their site, as it looks and acts surprisingly professional,
looking as though it were managed by a sizable team. Of course, great
credit goes to the duo, but the real underlying "magic" is simply the
ever-growing development--and use--of AJAX, the basic underpinnings of
what is now more broadly known as "Web 2.0" technologies. (Flickr is what
is it because they were early adopters of AJAX.) In other words, creating
the technology behind what would become a social-networking photo-sharing
photo licensing site is not hard. This means that the technical "barrier
to entry" is not technology. It's really about three other things. First,
one has to have the vision that this is the future. Second, the ability
to attract a critical mass of users and create a living, breathing social
network that people talk about. And third, to know and understand the
economics of selling a commodity whose value in the individual units,
not as a generic "class" of widget. Hint: an auction-based system where
buyer and product are combined to establish viable price points.
For example, the current hot-commodity in photo sales are microstock
and other agencies that are dumping images for pennies on the dollar. I
place no fault in their doing it, as I see their entire businesses
as a predictable byproduct of the broader industry not having found
any other way for a huge population of people to monetize their
photo assets. I consider microstock agencies to be temporary anomalies
because they are taking advantage of one particularly important aspect
of today's market conditions: their sales do not depend on a good,
strong, established base of images. They just dump images. One could
argue that "it helps to have better content than the competition," but
I will only concede that as a minor incidental. It should be well-known
by now that photography is now a commodity with infinite supply, and
a growth rate that exceeds the demand. The ability to acquire good,
quality images isn't hard. What is hard is mining that drudge
and presenting a package that's interesting to buyers, and microstock
agencies don't do that. In fact, no one does.
And that's where Phase Two of this business model begins. To address
this, let's return to the aforementioned Web 2.0 tools, and the online
advertising auction model.
Online advertising depends on an underlying ranking algorithm to
determine which sites best meet the criteria of a search pattern. To
also place ads on that site, it also depends on the ability to rank the
"value" of certain keywords. Ultimately, the system works when the system
feeds results to the searcher that best meets his goals. And the ads
the searcher sees when he gets to that page should be relevant enough to
inspire him to click on it. It took a while to get to where we are now,
but it happened because there was a business model that needed it.
During Phase One of photo-sharing sites that make images available
for licensing, the same patterns will emerge about who's coming, what
they look for, what they ultimately buy, and what the site can
do to better meet their searching needs for the purpose of building
the same kind of ranking engine. Stock photo sites think they have that
information, but their visitors are a much smaller subset of the broader
(and more highly trafficked) visitors to social networking sites. So,
although the data from agencies is interesting, data from photo-sharing
sites is more important for the broader auction based learning system. The
objective is to build intelligence about how to rank images in the
context of searches and buying, and what kinds of keywords (or other
photo attributes) command higher prices.
Search technology has matured to a point where it's easy to find the
good stuff first, despite everyone's attempt at getting their
website higher in the results page. This isn't true with photos, but
if online licensing ever takes hold on social-networking sites (or
even general search engines), then you can be sure that such a
ranking system will evolve. The mere presence of money demands it.
And whoever does it best will transform from a web-sharing site,
to a hub of a world-wide photo distribution system.
So, let's examine what this would look like.
It's already possible (using AJAX and tools made available by flickr)
to host flickr-based photos on your personal website. It's as easy as,
say, creating a google adsense account, or a yahoo publisher account and
hosting ads on your site. The next obvious step for flickr and others
is to use exactly the same existing tools that users already use
to put photos on their sites, to also display "buy" icon next to those
photos. This icon would go back to the hosting site where the buyer
would have the chance to license the image for a given use. The price
would be based on the results of the auction system, which will have
been established by this point.
The attraction for doing this is actually more compelling than
advertising, albeit for different reasons (and with different revenue
structures). Unlike an "advertisement," which is not "content,"
photography is. What's more, it's content with value.
If a newspaper wants to run a story on a fire downtown, the story isn't
better because it has ads for fire extinguishers. The story is better
because there are photos of the buildings being burned. If the paper
can do a quick search for photos of that building (which is very likely
when there is an infinite supply of images), there's a quick, immediate
sale. What's the price? Depends on how the auction plays out. In ads, the
auction goes one way. In photo licensing, the auction goes two ways. The
photographer has to accept the bid. The more unique the photo is, and the
more difficult it is to obtain, the auction system will rate it higher. If
not, the auction goes to the next photo in line. The supply and demand
kicks in, along with the buyer's perception of need for higher or lower
quality photos. The real economics of photo pricing will kick in,
and people will have far more incentive to participate in that model,
than in lesser-performing ones.
For anyone that would want to monetize their images, this model
enables them to have their images splashed on as many places as
possible. Hence, photo searchers would be able to find and source
images from more sites around the net. The underlying middleman is less
important, much like how users who click on ads and end up on websites
to buy a product without even caring that Google hosted the ad.
It's even possible that some people would make websites that do
nothing more than present images FOR SALE. Suddenly, anyone
can be a photo licensing agency.
The publisher (licensee) of the image has even more incentive to
license it than just to enhance his website's content: he also becomes
a publisher with potential income. Just as a website shares in revenue
when an ad is clicked, the same publisher (website owner) should share
in revenue when a photo he displays is bought or licensed by someone
else on his site. (Even more incentive not to steal.)
Users from either inside the photo-sharing site or outside interact
with those photos, and their input is aggregated into the same user base,
establishing one of many variables for what will be used for pricing
purposes (auction).
Pros would naturally be concerned because they may fear a dilution
effect of their images, or feel their prices would drop. If the model
is adapted well to the same ranking/auctioning type system used to sell
advertising, then it would follow that higher quality and more desirable
images would sell better. Rather than having the arbitrary and fickle
decisions of photo editors choose your photos or present them to buyers,
or whether to rank them highly on any given photo agency site, images
would be subject to ranking through a more stabilized system weighted
by the results millions of people participating in the system.
One more benefit to this model: manging the misappropriation of
images online. As all photographers know, images are illegally lifted
from photo sites all the time. Yet, this business model would have a
net positive effect on image stealing: first, it would provide potential
copyright violators with more visual cues and tools to properly
license images. "Innocent" stealing is often because there is no obvious
or automated mechanism by which one can "buy" the image. Another deterrent
to stealing is that the facilities for tracking down violators would be
implemented by these sharing sites, because they want to protect their
assets and potential income. Currently, photo sharing sites don't have
a business interest in tracking down violators, but if their revenue
depended on it, that policy would change quickly. So, not only would there
be more streamlined and automated tracking, the entities who would pursue
violators would be far more effective. (To the individual photographers
reading this, how many of you have succeeded in sending a mean email to
an infringer and, as a result, gotten payment?)
Now, if you've been focused solely on the online world, remember,
most images are licensed for print, or other uses that don't involve
the web. Not only is there more opportunity there, but I return to the
question of image stealing: there is already a fast-growing sub-industry
of photo-tracking services, seeking to jump into this game right
now. "Ideeinc" and "photo scout" being two such contenders. Photographers
currently have very little ability to monitor the potential use of stolen
images in print form. In this new model, more players would be involved
in this, which would also bring the price down for doing it.
So, image licensing would fall into more compliance that currently
exists today, which not only helps in price stability, but it adds a
huge amount of buyers into a system where they would otherwise not exist.
Lastly, final comments on pricing: because this approach is
phased, it's impossible to know how pricing would end up. One has to
have inherent faith in a model (proven by google's effect on online
advertising) that stabilization occurs when market forces are allowed
to perform naturally. The auctioning system in online advertising is
a model to follow, and I would certainly expect eyes to be looking in
that direction. It took the online ad auction system a long time to get
to this point, and I would expect nothing less here. Best yet, it is a
much more efficient system than the $1/image microstock model.
Initially, the system will have to begin open-ended to serve
at least two masters: established and experienced photographers need
to set their own prices for what they think the market will bear for
their work, both because they have good experience with this, but also
to get them engaged in the process. Secondly, to meet the needs of the
naive consumer, hoping for whatever comes in, reasonable default prices
will have to be established. These seem like competing objectives, but
the fact that the photo site itself makes money through a percentage
of sales as well, everyone has incentive to optimize return, while also
being aware that competition pushes prices the other way.
As the system evolves, photographers who are "ranked highly" would
naturally command higher prices, whereas my 2.5 year old son wouldn't
really sell that many of his photos. (Unless a museum took it as a work
of contemporary modern art.)
Obviously, competitive forces will affect prices across the board. but
this is expected. Using my own photo business as a reference, I would
expect to make up for any per-image price drops by the much broader
distribution of my images. After all, I face the same competition
today from microstock photo sites who charge $1 per image,
yet I continue to sell pictures for hundreds (sometimes thousands) of
dollars each. Why? Partially because my site and my images "rank highly"
on websites and in buyers minds. (Indeed, a future blog posting will show
some stats on how my latest price revisions have yielded a net increase
due to pricing and buying behavioral shifts in the industry.) But, also
in part because I'm a sophisticated seller--I know what I'm doing. But,
I don't want to oversell myself. It doesn't require a high IQ, just some
common business sense (that I discuss in my books). There's no reason
why a photo-sharing site can't recruit similar know-how.
Clearly, intelligent pricing has to be involved here, and my
experiences prove that the laws of economics for commodities are still
sound, and "anyone can do it." If an intelligent pricing engine were
introduced into the automated auctioning system, price erosion doesn't
have to result. If broadly applied--just like in the ad industry--there
should be a tremendously stabilizing effect on prices. As more and more
photographers, buyers and publishers participate, the distribution of
revenues should go to the content providers that actually have good
content to provide.
In summary, any company that wishes to get into the broad-based image
licensing model will have to do it incrementally, at least in the two
phases I outlined here. You can't jump in with both feet, but you also
can't sit back and wait. But you have to start now. Based on the calls
I've been receiving, there are many people who feel the same way.
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