July 12, 2007
By: Jim Pickerell
Lately, I've had some interesting discussions about microstock with various people from both the traditional and the microstock sides of the business. Here are a few observations.
There are traditionalist out there who are very upset that microstock exists and wish it would go away. It won't. It's here to stay and one way or another traditionalists need to find a way to live with it. On the other hand, many of the leaders in the microstock business seem overly defensive about attacks from the traditionalists. These leaders try to pretend that microstock will have little or no long term effect on the traditional business, but instead will just add a host of new buyers at a new price point. Yes, there are new buyers and that number will grow, but there will also be a negative impact - maybe severe - on the traditional business. With this article I hope that both sides can step back a little and take a realistic look at where all this is headed.
Over the last few years, there have been three key developments -- the Internet, Digital Cameras, and Amateur participation-that have changed the stock photo business forever.
The Internet made it easier for individuals to show their images to a much broader range of customers than had ever been possible before. It has also made it easier to search for, find and deliver images, as well as build large international communities of image users. Many of these users work on projects with image budgets that are only a small fraction of what customers have traditionally paid to use images. A number of image producers and sellers believe they can sell enough volume at the lower price to make up for any loses that might occur when some traditional buyers find what they need at the new lower price. In addition, it is believed that the new user will eventually be willing to pay more for the same number of images because he wants to raise the quality of his offering. I believe both these theories are wishful thinking.
Given the price differential it will be necessary to sell huge, unrealistic volumes to offset a very small percentage of losses that might occur. In addition, everyone needs to accept the fact that if increasing the number of users, not revenue, is the primary goal it will always be necessary to keep prices low. Once you start increasing price, some users will drop out rather than expand their budgets. And even if the sellers don't increase prices there will come a point where they've reached all the potential users and usage will stop growing.
This is the same thing that happened in the RF business 15 years ago. Initially, the price for CDs was very low. New users came into the market and rushed to buy CDs. Then there came a point where there was little growth in the number of images used or CD's sold. In order to increase revenue the CD producers started reducing the number of images on a given CD (so they could sell more CDs) and raising prices. And later, as the Internet developed, raising the price of single image downloads. As prices went up, users who had originally been attracted to RF by the low price began to disappear. They could no longer afford to buy photos. Nevertheless, gross RF revenue continued to grow for some time because there were enough users willing to pay the higher prices, given that RF was still cheaper than any other option. However, in the past couple of years RF prices have stabilized and it seems unlikely that it will be possible to push them much higher in the future, partially because of microstock, and partially because it is now often possible to negotiate lower fees for RM images. This transition took 10 to 15 years.
The development of digital camera technology has made it much easier for the average individual to produce very high quality images in a higher volume than was possible before. This and the Internet communities have opened access to the market for many who have no desire to become full time photographers.
Initially, microstock site developers wanted to build community and allow photographers to get some of their work published and receive a minimal economic incentive for it. The long term strategy was to attract and improve the skills of the semi-pros. However, just like the original RF, once the site managers achieved this goal they started aiming at professional photographers who could usually be expected to produce higher quality work in greater volumes.
A Few Points To Consider
The following are a few general issues related to microstock that are worth considering.
1 - The traditional RF business took more than a decade to develop from its start as images on CDs to the plateau where there was little or no growth in image users or price. Microstock has made huge strides in the last 18 months since Getty Images acquired iStockphoto. While it is very difficult to say when microstock will reach its full potential I believe the growth to maturity will occur at a much more rapid pace than was the case with traditional RF. The following are a few reason why:
- It is estimated that in the neighborhood of 30% of the buyers are also suppliers of imagery. They have big incentives to both help the sites grow in terms of image selection and to keep prices low.
- The Internet has made it much easier for buyers worldwide to communicate and encourage one another. They will tell their friends about microstock.
- In some ways search on the microstock sites is more user friendly than that offered by some of the big traditional brands.
- Earning as much as possible from their images is not a first priority for many suppliers. They just want to see their images used. As one blogger said, "I think most of the people who are participating are doing it as a hobby, in their spare time, for some spare change."
- A number of suppliers are enamored with the Creative Commons alternative to full copyright. A blogger said, "open-source empowers a lot of little guys, which is worth a lot."
- Micropayment photographers are seeing their revenues rise -- although from a very low base -- while most traditional photographer are seeing revenues fall unless they are adding a huge number of images to their collections.
2 - All designers are likely to use microstock for some projects in the future. This happened with RF and, since price is not an inhibiting factor, there is no reason why the wise art director who doesn't need an exclusive image wouldn't check out a couple microstock sites first to see if he can find something to use. Traditional users are unlikely to use microstock exclusively, but any time they use a microstock image it will likely be instead of - not in addition to - using one priced at traditional levels.
In the Piper Jaffrey survey (Story 915) reported in early 2007 the number of traditional customers in the U.S. either occasionally using or considering the use of microstock grew from 62% in the summer of 2006 to 77% by December 2006.
In January 2006 Getty said that 8% of its customers were also iStock customers. Recently they told analysts that the percentage is now 15%. The question is which customers make up the 15%? If the 80/20 rule of business applies 80% of Getty's revenue comes from 20% of its customers. Is the 15% made up almost entirely of Getty's biggest customer, or of mostly Getty's smallest customers? Are three-quarters of that 20% currently using microstock to some extent? Will their use of microstock grow as the quality improves?
Yes, microstock probably has hundreds of thousands of new buyers who will never be able to afford an image at traditional prices, but they will have to buy a huge number of images to offset a small number of traditional sales that are lost to that 15%.
3 - In some ways, the microstock sites offer buyers a better search experience than is the case with most of the traditional sites. Most traditional sites control the search return order for the buyer. They may let the buyer search for just photos, or just illustration, for color or B&W, or for images in certain collections.
However, microstock offers all of these plus a more. In its arrogance, traditional is giving microstock a major advantage. Microstock allows buyers to order their search returns by best match, age (most recently uploaded first), number of downloads, number of times a preview of the image has been viewed, rating by visitors to the site, and size or resolution. They also make it possible for buyers to view a contributor's portfolio or total collection, the number of image the contributor has on the site and the number of times his images have been downloaded.
Two of these deserve special mention. Being able to sort images for a particular search by downloads in descending order allows the buyer to see the images that have been most frequently uses by other buyers. This tends to bring quality, most used images to the top and simplifies the search for many buyers. If buyers are worried about some of these images having too much exposure they can search for downloads in ascending order and see images that have never been used. This information is also useful to producers trying to understand what is in greatest demand.
Size and resolution is another important distinction. The major traditional agencies solve this problem by only accepting high resolution files that are 48MB or above. This is fine except that it prevents a lot of good images, shot with lower resolution cameras, from being seen. In many cases these smaller files are perfectly adequate for web use or other smaller uses.
I think the failure of the big traditional agencies to offer search by download or number of times a preview has been viewed is a dangerous oversight. Everybody has been looking hard at what microstock has to offer for the last 18 months and yet, as far as I can tell, no one has moved to adopt this very useful search method pioneered by microstock. This is particularly strange in light of the fact that everyone is looking for ways to make search easier for the buyer. Traditional agencies may argue that this is proprietary information, but trying to hold onto such information could eventually cost them sales.
4 - At the recent CEPIC conference Oleg Tscheltzoff of Fotolia indicated that sales have been growing at a rate of 10% per month for more than a year and he expected that growth to continue indefinitely. He believes that currently the total micropayment market is about $100 million and that eventually the stock photography market could reach $4 billion (now at about $1.8 billion). Serban Enache of Dreamstime was more conservative on the current size of the market and what the growth potential might be.
It is impossible to know how much growth potential in terms of number of uses remains, but given its meteoric rise, and its already close to universal adoption by traditional users, I will be surprised if it more than quadruples and the vast majority of those users will only be occasional users. I suspect that most of those who have the potential to use large numbers of microstock images are already using them to some degree. But, don't be sanguine by this statement. Those big image users who are using a little microstock now will use a lot more in the future.
5 - Microstock has tried to argue that because they sell images at such low prices it has reduced the amount of unauthorized uses of images that are priced at traditional levels. They say if people can get images for $1.00 why would they bother to steal? It's a nice theory, but one that the available data doesn't support. PicScout has a system for finding RM images on the Internet that are marketed by certain stock agencies. They say that in 90% of the cases, when they find that an RM image has been used it has not been properly licensed.
6 - Many graphic designers used to estimate design fees and the photo fees separately, but the customers tended to think of a lump sum for the total project. Now with the advent of microstock designers may choose to quote a lump sum. If they don't break out the cost of photos and get them on microstock sites they can bid the project at less than the customer paid previously and still turn a larger profit because the cost of images is such a small fraction of the overall project budget. I don't mean to criticize designers for taking advantage of a legal opportunity to make a better profit. The huge discrepancy between microstock prices and traditional RF prices makes this possible. Microstock can't be "blamed" either because these prices seem to be all that the sellers want.
7 - The clearest evidence that there is a negative impact on the industry is in Getty's numbers. Getty's total RF revenue in 2005, before they purchased iStock and before the microstock business started taking off, was $272.91 million. In 2006 their total RF revenue was $308.17, but at least $20 million of that (maybe more) was from microstock so traditional single image RF sales plus CD's was about $288 million. That means growth of traditional single image sales was at most $16 million, or less than 6%. But wait, in 2006 Getty purchased Stockbyte and the extra benefit from sales made by the huge Stockbyte distributor network became part of Getty's total revenue. How much of that $16 million would Stockbyte distributors represent? I think it is entirely likely that those distributors represented more than $16 million in revenue. In addition since Q2 2006 (after Getty purchased Stockbyte) the total number of RF single images licensed and the revenue from those sales has steadily declined, not by much on a quarter by quarter basis, but declined none the less. If it is happening to Getty, what is it doing to the rest of the traditional RF producers and distributors? And the impact of microstock is just getting started.
After you've contemplated these issues for a while consider an observation by Tom Grill on the future of microstock. He says, "The evolutionary process isn't over by a long shot, ... it is still too early to make any predictions as to final outcome. Thankfully, there is still plenty of time left in this movement for those sitting on the sidelines to gain their composure and prepare evacuation plans before the tsunami really hits." Yes, there is time left, but don't think you can wait too long.