Let’s walk down memory lane. Almost 15 years ago in November 2006, I had the joy of writing and publishing my first business case study about iStockphoto, a Calgary based company acquired by Getty Images for US$50 million in cash in February 2006. If was amazing meeting, interviewing and learning from iStockphoto founder and first employee/ex-president to write the case study for the site Startup Review thanks to its editor Nisan Gabbay.
Before I repost my 2006 case study, let’s put “Stock Photo” in a bit of 2021 fun context by sharing screen captures of search results of “stock photo simu liu”. Yes the same star Simu Liu of Kim’s Convenience and Marvel Superhero Shang-Chi fame appeared on the covers of way too many accounting textbooks if you ask him! HuffPost article “Simu Liu Was A Stock Photo Staple Before He Was A Star” quoted Simu screamed well in an adorable tweet, “PLEASE STOP USING MY FACE FOR YOUR ACCOUNTING MATERIALS!!”
Here is a version of the iStockphoto business case study that I rediscovered thanks to the trusty internet archive. I hope you learn as much as I wrote it in 2006 and as I re-read it now in 2021! 15 years have gone by since I conducted the interviews and wrote the case study, it is an insightful read even for me now in 2021, if I may shamelessly say so. Enjoy!
iStockphoto Case Study: How to evolve from a free community site to successful business
written by Kempton Lam and Nisan Gabbay, posted on November 26th, 2006
Note from Nisan Gabbay: I am pleased to announce that this week’s case study is the first to be authored by a Startup Review reader, Kempton Lam. Kempton is a management consultant who specializes in assisting start-ups. Please see Kempton’s background and blog for more information. Kempton followed the same process that I take in creating these case studies, and I served as editor to ensure that the format is consistent with the Startup Review format. If you’d like to become a guest author for Startup Review, please contact me.
Why profiled on Startup Review
iStockphoto is both an online community for photographers and a source of high quality, low-cost stock photos. As of October 2006, iStockphoto’s stock photo library contained ~1.1 million images contributed by 23,000+ photographers. In 2006, iStockphoto expects to sell 10 to 12 million photo licenses from this library, at prices ranging from $1 up to $40 per image. iStockphoto’s success opened up a new market segment for stock photography, catering to customers who could not afford traditional, high cost stock photos from the likes of Getty Images and Corbis. This success caught the eye of Getty Images, who acquired iStockphoto for $50 million in cash in February 2006.
Interviews conducted: Bruce Livingstone, founder & current CEO of iStockphoto. Patrick Lor, first employee and ex-President of iStockphoto. Paul Connolly, independent consultant specializing in digital media and the stock photography market. Special thanks to Kara Udziela and Yvonne Beyer of iStockphoto for helping to support the creation of this case study.
Key success factors
Offered a free alternative for a previously high cost service
iStockphoto established the market for “microstock” photography by providing high quality stock photos at extremely low price points. iStockphoto’s innovation was offering all its photo licenses royalty-free, available via easy download over the Internet. The notion of high quality photos licensed for free was a game changing development in the stock photography market in 2000. iStockphoto enabled the distribution of photos from budding and semi-professional photographers to reach a large market for the first time. iStockphoto also drastically reduced the cost of stock photography for a slew of customers (graphic designers, small businesses, non-profits, etc.) that could not afford traditional sources of stock photography.
As iStockphoto increased in popularity, hosting and bandwidth fees for the site grew proportionally, forcing a decision upon Bruce as to how to pay for bills approaching $10,000 per month. Bruce opened the discussion to the iStockphoto community, ultimately allowing the community to determine an acceptable solution. In February 2002, the community decided to charge $0.25 per photo mainly to cover site maintenance fees, with 20% of charges going back to the photographer.
iStockphoto has since gone through several iterations of its business model, but continues to offer photos at a relatively low price point. The first iteration occurred in 2004, when iStockphoto officially became a for-profit entity. At that point iStockphoto charged 1, 2, or 3 “credits” (priced at $0.50 per credit) for photos of different sizes, offering a 20% commission to the contributing photographer. Today, iStockphoto offers photos at a myriad of price points and has a more robust photographer commission structure. For example, photos are offered at price points of 1, 3, 5, 10, 20, or 40 credits (priced at $1 per credit). Commissions vary from 20% – 40% based on sales milestones reached and whether the photographer grants iStockphoto exclusive use of images.
Fostered a loyal and active community
iStockphoto was started as a hobbyist site by founder Bruce Livingstone and it remained so for several years. The fact that iStockphoto wasn’t created as a business venture from the start was a big factor in iStockphoto’s success. In many ways it parallels the start of another popular online community, Craigslist. Just as Craig Newmark’s personality has had an influence on Craigslist, so too has Bruce’s personality and passion for photography had an influence on the iStockphoto community. Bruce was always a core user of the site, and as such attempted to nurture the needs of its users.
iStockphoto consciously fostered its community from day one through forums, emails and face-to-face meetings. iStockphoto has many active online forums where new users can post questions and get help from experienced users. These active forums have made the iStockphoto community welcoming to new users and engaging for experienced users. Secondly, iStockphoto makes a point to provide very prompt responses to user questions submitted via e-mail. Even as CEO, Bruce routinely takes the time to send emails to users to offer encouragement or help. Thirdly, iStockphoto hosts a series of trips (called iStockalypses) where users can shoot photographs of interesting places and share knowledge about the stock photography trade.
The iStockphoto site itself has many features that help to get users engaged with the service. For one, it provides transparency around how active certain members are with the site, specifically around number of photos uploaded and number of paid downloads. This enables new users to learn from the success of power users, providing examples of the types of photos that get the most traction. iStockphoto also creates a sense of positive psychological exclusivity amongst users by only approving photos that meet certain quality standards. This process helps users improve their photo taking skills and makes them feel that they have “earned” their place within the community.
Emergence of low-cost “prosumer” digital SLR cameras
In the winter of 2003, the Canon Digital Rebel (a 6.3 mega pixel prosumer digital SLR camera) became available at a price under $1,000. Both Bruce and Patrick viewed the availability of these cameras as a turning point for iStockphoto because they created a great influx of high-quality photos. iStockphoto was in a great position to capitalize on this emerging trend through the infrastructure they had developed over the previous years.
Took measures to ensure that submitted photographs met quality standards
As the popularity of the iStockphoto service grew, the number of photos submitted exploded. At the same time, customers came to expect a certain level of photo quality from iStockphoto. As such, iStockphoto developed detailed guidelines for what constituted acceptable photo submissions. iStockphoto views this both as a quality control mechanism and a means to provide feedback to photographers. iStockphoto takes time to explain to contributors why their photos are rejected. According to Patrick, sometimes a new user may only start with a 25% acceptance rate but with constant feedback and guidance are able to improve their acceptance rate to 75% – 90% within 6 months.
Launch strategy and marketing
iStockphoto was originally started as a hobbyist site in May 2000 by Bruce Livingstone. Bruce created the site as a means to share and publicize his portfolio of photographs. Initially seeded with 1,600 of Bruce’s photos available for free download, the popularity of the site prompted Bruce to open the site to other photographers who also wanted to contribute their photo collections. This transformation took place 6 months after initial launch, creating a thriving community of contributing photographers.
Bruce initially marketed the site by word of mouth, telling friends via e-mail. One of Bruce’s friends, web design guru Jeffrey Zeldman helped publicize the site from its early days by blogging about it and using iStockphoto images in magazines like Macworld. Mr. Zeldman’s influence in the designer and photographer communities was highly instrumental in popularizing the use of iStockphoto for royalty-free stock photos.
As the iStockphoto community evolved, its photographer base served as the main marketing vehicle. By promoting their own iStock photos, these photographers create publicity and word of mouth marketing for the service. iStockphoto provides them with some interesting marketing tools (like free, customizable business cards) to help them self-promote their portfolios. Today iStockphoto has 23,000 photographers that are the cornerstone of the company’s marketing efforts.
Later on its lifecycle, iStockphoto began advertising its service on the Internet, in print, and at trade shows. An extension of this advertising strategy was to maintain good long-term relationships with influential book authors within the design community who could provide increased awareness for the iStockphoto service.
iStockphoto was able to support its operations for many years from the revenue generated by photo sales. However, during business planning in late 2005, the company realized that they needed about $10 million to meet their future growth expectations, including $3 million for hardware expansion costs. With this new capital requirement, the iStockphoto management team sought venture funding for the first time. After securing a term sheet from a VC, management became hesitant that this was the best option for the company. The team feared that they would not be able to maintain product control or nurture the community in the same fashion that iStockphoto had been built upon. Thus Bruce decided to seek other options, and contacted Jonathan Klein, CEO of Getty Images. After some positive conversations regarding company strategy and cultural fit, iStockphoto was sold to Getty Images in February 2006 for $50 million in cash. This represented a valuation substantially higher than the valuation placed on the company by the proposed VC investment. Hence the sale to Getty Images made both financial and cultural sense for Bruce and the rest of the iStockphoto team.
Food for thought
I was surprisingly struck by the parallelism between iStockphoto’s company history and evolution, and that of another successful online community, Craigslist. Both began as a hobby fueled by the passion of their founders: for Bruce it was photography and for Craig Newmark it was local events. The popularity of both services grew beyond anything the founders had envisioned, largely driven by creating a free service where only high cost options existed before (high end stock photography and print classifieds respectively). Both grew to a point where the services had to be sustained by incorporating small fees into the service, all with the support of the community itself.
Some great lessons can be learned by the examples set by these two successful companies. For one, the needs of the user base will tell you when is the right point in time to add fees, rather than implementing a revenue model prematurely. For iStockphoto, as the level of sophistication of its users grew, so did the necessity for more advanced pricing and commission models. For Craigslist, they began charging for some categories of online classifieds to improve the user experience. In both instances, it was actual user needs that drove the revenue model and timing of the revenue model.
Secondly, you have a sustainable company on your hands when you have created or contributed to the financial livelihood of a segment of your users. One reason that iStockphoto has such an active community is that their power users have personal, financial ties to the overall success of the company. For example, the top iStockphoto photographers have had hundreds of thousands of their photos downloaded – that’s real money that iStockphoto is putting into the pocket of its users. eBay and Google are probably the best two examples of Internet companies that have also created significant personal wealth for individual users. iStockphoto has created it as well, albeit on a much smaller scale. Can you create a service that contributes significant personal income to your users? If you can, chances are you’ll have a successful service.
On a separate note, both Bruce and Patrick credited much of their success to having great mentors and advisors involved with iStockphoto. Both Bruce and Patrick have been reading, learning, and applying business concepts and ideas from the business guru Guy Kawasaki for years. After meeting Guy in 2003, he became a close personal mentor for the iStockphoto management team. Having great advisors and mentors can be critical to the success of any company, but particularly a start-up. No entrepreneur can possess all the skills and experiences necessary to succeed themselves; it helps immensely to have the right mentors to act as a sounding board.
Reference articles / additional reading
Additional thoughts on iStockphoto at Kempton Lam’s blog.
“The Rise of Crowdsourcing”, Wired, June 2006 (the paradigm shifts initiated by iStockphoto and others)
“2006 Fast 50 nomination of Bruce Livingstone”, FastCompany.com (a glowing nomination, and a long list of supporters’ endorsements that make for a fascinating read)
“Interview: Bruce Livingstone, CEO istockphoto.com”, Decker Marketing blog, January 2005
Nice interview with Bruce who has some insightful responses on what makes the istockphoto different from the competition and why it was initially successful.
“The stock photo community”, DesignMentor Training website
Has a few detailed paragraphs on Bruce’s background and how iStockphoto got started.