The Marketplace Lure

Social media photo platforms, rising in numbers from the dual pull of Instagram $1 billion acquisition  and people’s insatiable appetite for  mobile photography, are facing a complicated maturity issue:  How to monetize without defection ?

The first step of all social media photo platform is to gain traction by gaining market share. Here, all the models are the same : using the network effect, grow your users base to a comfortable number ( usually in the millions active users) by offering them a set of free tool they find attractive and cool enough to invite and share with their friends. The key word here is free. Although a few platform have somewhat succeeded with a paying model – Hipstamatic comes to mind – , they are rare.  Their traction could be more credited to their launch at an early stage of the competition – when the landscape was scarce rather than their offering. Today, it is extremely doubtful that a paying model at launch would ever work.

Free is good as long as you can raise capital. But even that has its limit. Capital needs promise of returns and this is where things get tricky.

There are three ways a photo sharing platform can generate revenue:

– Charge a fee

– Advertising

– Sell it’s UGC

Let’s review:

Charging a fee, especially after being free for a long period of time, has always been seen as a network effect killer. Long term users get upset in suddenly having to pay for something they feel they helped make successful.  Resentment creates defection as well as social media backlash.   The answer here is to add features under the “pro” heading and charge for the those, in the hope that most, if not all , existing users convert.  The “freemium” model . Flickr, a good example, has been estimated at about $50 million/year ( yahoo does not release Flickr revenue) from 2.1 million pro users, representing only 7% of total accounts. Not bad, but certainly not a winner.  7% is low and if Yahoo recent decision to make those pro account ad free means that the next step in Flickr’s growth is advertising. Which brings us to point number 2:

Advertising is the Eldorado of all content base platform. This is where fortunes are made, or lost, in the wild west of internet ventures. Even for a company like Yahoo, who has a massive sales infrastructure, it is not an easy process. First, you have to define your user base, make it attractive to brands and advertisers. Most photo sharing platform do not have that information. In fact, besides a user name a location, they have little to show in terms of information about their users. You then need to devise an advertising product that is both satisfying for advertisers and users. Slapping a banner ad is just not going to work. Because advertisers needs are very often in direct contradiction  with users’ comfort, it’s an extremely complex balancing act. Badly done and you quickly alienate advertisers, users or both. Finally, with all its growth, online advertising is not unlimited. If the two previous barriers of entry have successfully been jumped, one still has to compete with the obscene amount of existing advertising solutions currently on the market. In other words, convince advertisers to use your platform instead of the New York Times.

Finally, if you do not want to alienate your content creating users, you are left with the option to help them sell their images while taking a commission. Creating a marketplace. Issues here are also numerous but the number one is probably the time and cost of finding and convincing images buyers to shop at your store. Traditional image buyers are already saturated with highly curated and professional images offered by very experienced stock photo agencies like Getty or Shutterstock. They are very comfortable with these companies along with strong, almost friendly relationships, with their sales team.  The top stock photo agencies  spend in the ten of millions of dollars each year in marketing to preserve, protect and enhance their market shares. They also have massive sales team in each country to promote their content and cut deals where appropriate. Non traditional buyers, the ones that might need an image once a year are also the target of these companies who have become expert in image SEO.  Finally, they have massively powerful search engines along with professionally keyword images that allow for quick retrieval of the perfect image. For a start-up to compete in that space is an exercise in long term persistence that can suck up all their funding very quickly with little or no results. Once you have announced to your users you will make them rich by monetizing their content, they expect to see returns quickly. If you don’t, what seemed to be a good idea becomes a social media nightmare.

Recently, EyeEm, announced that it had elected to let Getty Images handle the sales of their users images while 500px, after a false start, decide to create their own individual sales platform. EyeEm gains immediate reach to a very large client base in exchange for a royalty payment to Getty. That is , for every sale that Getty makes of EyeEm’s images, Getty will keep a % ( unknown for the moment).

500px, for now, has taken the most difficult route by electing to create and promote their own platform. It will be interesting to see how long will it be before they announce a similar partnership.