What Will Shutterstock & Fotolia Do With The Money?

Posted on 5/25/2012 by Jim Pickerell | Printable Version | Comments (1)

Fotolia just received $150 million growth investment and Shutterstock will have over $100 million from an IPO soon. What will they do with the money?

Clearly they will spend a lot of it on Pay-Per-Click, SEO and other types of marketing to try to broaden their customer base as they compete with each other and iStockphoto. In 2011 Shutterstock spent $32 million on marketing (26% of revenue). A huge percentage of that was for Pay-Per-Click and SEO. Today, if a customer searches Google, Yahoo or Bing for “Stock Images,” or virtually any combination of words related to stock photography, the first company to come up is usually Shutterstock.

The Fotolia brand is seldom seen, at least in the U.S. They will need to spend a lot of money to catch up and get the visibility and name recognition that Shutterstock has. Of course, the top position in search goes to the company willing to bid the most for the ad space. As Fotolia raises the ante Shutterstock will undoubtedly increase its bet in order to stay in the top position. Google wins. But, if Fotolia wants to grow its business significantly they will need to start by spending a lot more on advertising.  

In addition, if you are in the photography or graphic arts businesses the banner ads that are likely to appear most frequently beside any of your searches are ads for Shutterstock. Even if these ads don’t result in clicks they bring name recognition. In it’s S-1 filing Shutterstock says, “An important driver of our growth is customer acquisition, which we achieve primarily through online marketing efforts including paid search, organic search, online display advertising, email marketing, affiliate marketing, social media and strategic partnerships.”

The company also said, “we plan to increase investment in online and offline marketing to help raise awareness in our core customer and contributor communities as well as in additional market segments and geographies.”

Aiming At Larger Businesses

Also in its S-1 filing Shutterstock said it plans to increase its penetration of Media Agencies and Large Enterprises. In 2011, less than 10% of its revenue was generated through direct sales to companies with more then 500 employees. However, it is entirely possible that many large companies outsource much of their design work to small companies with 20 or few employees. To the degree this is true, many of the sales to small businesses may actually be for work done for large companies. If that is the case the 10% figure may not be an accurate representation of the company’s penetration into the large business market.


Both companies will probably look at acquisitions. It seems unlikely that they will have much interest in acquiring any of the smaller microstock brands. For the most part those brands have many of the same images so they would not offer much in the way of new content. In some cases they have images that the bigger company has already rejected so a lot of editing would be required for a complete integration. The smaller microstock brands might add some customer names that could be useful and remove some competition.

Such actions would probably be of less value to Shutterstock than Fotolia. Shutterstock already has broad distribution evenly spread over the entire world.  They have active users in 150 countries and their site can be accessed in 10 languages. They had more than 550,000 unique paying customers in 2011. Their 2011 revenue was spread as follows:

North America 34%
Central & South America 9%
Europe 40%
Middle East 6%
Asia/Pacific 11%

Thus, 66% of their business was outside of North America.

It is generally believed that Fotolia is strong in Europe, but has very weak penetration in other parts of the world, particularly North America which will be key to their growth. There is a rumor that KKR made an offer of $1.5 billion for iStockphoto before they announced their deal with Fotolia. Evidently Getty wanted much more than KKR thought the brand was worth. (See story)

Acquire Traditional Agencies Or Distributors

If they are thinking acquisitions – and KKR seems to be – they might look at traditional RM production companies in order to get access to imagery that has not been available to their customers before. The first thing they will have to do is figure out how to offer more higher priced content. This will be easier for Fotolia because they can easily copy iStockphoto’s strategy of multiple brands.
These companies may be willing to take on new content on a royalty basis, but I can’t see either of them purchasing a traditional agency or distributor outright unless they can own all, or a significant portion of the content. The subject matter would also probably need to be something that they don’t already have quite a bit of. Stock suppliers can quickly check these sites and determine if the subject matter they have to offer is something that is not already well represented. The suppliers images may be “better in their opinion” than those found on Fotolia or Shutterstock, but that alone will not be enough.

Localized Content

Shutterstock  believes there is demand for “localized content” they don’t have. In the S-1 they say, “There is a significant unmet demand for localized content, such as images with locally relevant themes, objects and ethnicities.” The specifics of what they are looking for need to be examined carefully. The problem with localized content is that it may not produce the volume of sales that more generic content will produce. If they are willing to purchase such content outright then it’s their problem is sales don’t meet expectations. If they expect photographers to produce such content on a royalty basis the photographer should be very cautious. If the prices to use such images remain low then the creator will not be able to justify the costs of production. Another factor to consider is that the editors may reject such content when it is presented because they believe there is insufficient demand for it. At the very least there must be very specific definitions of the “localized content” and the “ethnicities” they are looking for if they expect photographers to produce images where there is little demand.

Higher Priced Imagery

One of the things Shutterstock is surely looking at is some way to offer more imagery at premium prices. Fotolia and iStockphoto have had good success with their higher priced brands.

However, since the company’s founding Shutterstock has been focused on offering subscribers unlimited access to every image on its site with no price variations. To say that certain images on the site could not be downloaded by subscription customers could damage their relationships with their customers. They have been able to successfully introduce a single image pricing model for those customers that only want to use a few images, but there is a limit as to how high they can push the price of On Demand packages without making it more attractive for customers to simply purchase a subscription. As it stands now all the images available at On Demand prices are also available for subscription downloads.    

Despite their commanding position in this subscription segment of the market Shutterstock reports that only 59% of their 2011 revenue came from subscriptions. Almost $41 million in revenue resulted from customers purchasing just the images they needed, as they needed them, rather than subscriptions. The vast majority of this revenue came from On Demand packages where the customer can purchase one image for $19; five images for $49 or 25 images for $229. These prices are significantly higher than the single images prices for small uses that are found on other microstock sites. Nevertheless, a significant number of customers are willing to pay these higher prices prices. Part of the $41 million resulted from licenses of the images in the BigStockPhoto collection, and from purchases of Enhanced Licenses when subscription customers needed broader uses of an image than their subscription license allowed.

If Shutterstock goes in this direction they may decide to take on collections from production companies, or top producing photographers, and offer them at higher price points as Fotolia has done with its Infinite collection and iStockPhoto has done with The Agency Collection (referred to as TAC) and Vetta. The practice on these other sites has been that the images put into these collections must be exclusive to that collection.

Another option might be to create a completely new sister brand like BigStockPhotos. This brand could offer all the photos from their current site, but only at single image prices. It would be easier to add newer higher priced images to such a site. Such images could be sold at premium prices. Premium producers would be more inclined to supply images to such a site because their images would never be made available to subscription customers at the current low prices.

If Shutterstock were to develop such a site there would be other advantages. They could take image that have been in high demand on the subscription site and make them available at higher prices on the new On Demand site. Then any given image could be made available on both sites, or only on the higher priced On Demand site. Once images were chosen to be on the On Demand site Shutterstock could give photographers the choice of pulling the images off the subscription site if they choose. Shutterstock would also have the advantage of being able to market this new site to all the customers who use their current site.

In order to penetrate the Media Agencies and Large Enterprises which is one of their goals they will probably need to find a way to offer some imagery at higher prices and maybe make some images available for exclusive uses as Yuri Arcurs has done with his new site.

Cost of Revenue

The cost of revenue for Shutterstock was $45.5 million in 2011. Cost of revenue consists of royalties paid to contributors, credit card processing fees, image and video review costs, customer service expenses, the infrastructure costs related to maintaining our websites and associated employee compensation, facility costs and other supporting overhead costs.

My estimate is that royalty payments to contributors were slightly less than 20% of gross revenue. Credit card processing fees alone were $5.1 million in 2011 which would leave only $15 million, or a little more, to cover all the other costs described above.


Shutterstock says that since their founding 335,000 customer accounts have been created, but only 35,000 of these applicants have been approved to submit images. As of April 30, 2012, over 36 million images had been submitted to the review team by approved contributors and, of those, only 19 million, or approximately 50%, had been approved and made available on the Shutterstock site.


Shutterstock’s spectacular growth in the past year can certainly be attributed to its marketing, and I suspect to increased sales at On Demand prices. In addition customers getting fed up with iStockphoto due to some of its practices certainly helped Shutterstock grow.
Shutterstock 2007 2008 2009 2010 2011
Cumulative downloads (millions) 33 67 101 145 204
Downloads in year (millions)   34 34 44 58
Images in library (millions 2.6 5.1 8.9 13.3 17.4
Revenue (millions) $30 $53 $61 $83 $120.3
Percent of Growth   76% 15% 36% 44%
Operating Expenses (millions)     $41.4 $63.2 $97.40
Net Income (millions)       $18.9 $21.9
Average price per Download   $1.56 $1.79 $1.89 $2.07

Shutterstock believes there is an opportunity to grow the business it does with Small and Medium Sized business (SMBs). In the company’s last survey they found that 70% of their customers work at companies with less than 20 employees. Their active user base in the U.S. represents less than 1% of the approximately 24 million SMBs that BIA/Kelsey estimates exist in the U.S. According to Kelsy more than 32% of SMBs don’t even have websites which is likely to change and Kelsey estimates that SMB advertising spend on online digital media will increase from $5.4 billion in 2010 to $16.6 billion in 2015.

Copyright © 2011 Jim Pickerell. The above article may not be copied, reproduced, excerpted or distributed in any manner without written permission from the author. All requests should be submitted to Selling Stock at 10319 Westlake Drive, Suite 162, Bethesda, MD 20817, phone 301-461-7627, e-mail: wvz@fpcubgbf.pbz

Jim Pickerell is founder of www.selling-stock.com, an online newsletter that publishes daily. He is also available for personal telephone consultations on pricing and other matters related to stock photography. He occasionally acts as an expert witness on matters related to stock photography. For his current curriculum vitae go to: http://www.jimpickerell.com/Curriculum-Vitae.aspx.  


  • Eden MC Stewart Posted Sep 30, 2013

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