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The myth that microstock agencies hurt stock photo pricing

Thursday, March 08, 2007

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I was talking with a photographer friend of mine about why he doesn't sell his own images on his website. His response was, "Who can compete with microstock agencies selling images for $1 each?"

My immediate response was, "I do just fine. In fact, I've raised my prices at the beginning of the year."

And that got me to thinking, Why is it that I can do that? Why aren't buyers pressing me to lower my prices? Why aren't competitors stealing my business?

The short answer is counter-intuitive for economists because there's a twist to this story that is rarely ever seen: it's not the buyer pressing prices lower, it's the competitors themselves. They're simply acting naturally, according to the laws of supply and demand: as the supply goes up, prices drop so competitors can sell their wares. But what's happening in the photo microstock industry is a bit of twist: buyers aren't putting pricing pressures lower, but the sellers aren't expecting that.

How can we tell? Well, by the data. The premise begins with the question I posed at the top: why aren't my sales hurting? The two-part answer begins with the fact that my site ranks very, very highly. (Or, it did at the time of this writing back in 2007.) This means that when people search for images, they get to my site ahead of many others, at least for certain keywords. (I rank high for a lot of keywords, but I don't claim to have cornered the market by any means.) The second part of the answer is that if they find the image they want, they simply buy it. If price was a concern, they would move on.

One might ask, "How do you know who's moving on and who's staying?" Again, data. My traffic has gone up and down dramatically since I started selling images online back in 1998. Since then, there's been a very tight correlation between the total unique visitors and the number of images I sell. The only variations to that rule have come when I've adjusted prices, and even then, the results were counter-intuitive. When I started selling pictures, my prices were naively low and I got very little buyers. It wasn't until I raised my prices did I finally get more buyers. (I talk about this experience in greater detail here.)

Once my pricing stabilized, my ratio of traffic to buyers has remained constant. Even as microstock came into the picture, and people were dropping their prices precipitously, I never did. Yet, the ratio of traffic to sales has remained flat. If pricing were a factor, that ratio would not remain consistent.

This then begs the question, why doesn't the buyer care about price? There are two very likely answers that are both supported by data. First, most buyers are not aware of other, lower-priced sellers. Second, despite the possibility of a lower price elsewhere, the differential is not enough to bother. Let's take each separately.

Public Awareness of Stock Agencies
Regarding the "awareness" of other photo-selling sites (like microstock), we are still in an era where online licensing of imagery is still unknown to most photo buyers. Most pro photographers would have a hard time believing that, but this is explained by their historical roots: most pros are used to a very narrow group of buyers—the old-style traditional print/news media companies—who use traditional stock agencies. There was a time when media companies were the only buyers of images, and most pros (and agencies) continue to believe this delusion. As long as this class of buyer continues to buy in large volumes, the delusion perpetuates.

But traditional media agencies are not the only buyers of images by orders of magnitude. (Editing note: In an article I would write several months after this one—which would be titled, the Photo Licensing Market (Tuesday, July 17, 2007)—I cite numerous data that supports the thesis that most photo buyers are consumers or non-traditional office workers, designers, stay-home-moms who create brochures for clients, and so on.)

Those who have not worked in the traditional media industry are largely unaware of traditional stock photography websites, and this population numbers in the 10s of millions. And what keeps those buyers from finding traditional stock photography websites (or microstock sites) is their poor search engine rankings. The plethora of consumer-generated photos on the internet dilutes their visibility, and they do nothing to fix this problem. Their traffic is low, no one links to them (because there's no reason to), and they have no other content for search engines to index. Because photos themselves don't index well, this puts them pretty far down on search results when people do searches.

Price Sensitivity
As for price sensitivity, the reason why buyers don't balk at my prices is because most buyers aren't spending their own money. Their budgets are set by others: clients, employers, and so on. Those budgets have to factor in a large number of expenses, such as equipment, and the general overhead of running a business. More specifically, the cost associated with whatever the project happens to be, which includes printing, copy-editing, and of course image licensing. The most costly element in this equation is labor. The employee or contractor that's looking for the image costs a lot of money. So, when you calculate the total cost of the project that requires that image, the actual license fee is nearly negligible. In fact, a research study I did for a client in 2005 showed that photo buyers are encouraged to limit the amount of time spent finding images because their time is very expensive. Photos aren't.

So, when a photo buyer starts to do a search, and they quickly land on my site (because of my ranking), the one and only question is: does the photo work? If so, price is not a factor. A $50 license fee is identical to a $1 license fee for this reason: if they had to spend only a dollar, they would to spend another $50 in employee time continuing a search that would yield no appreciable difference in the final image. Spend the money and move on.

(Editing update: Since this article was written, Google has improved its "importance" of images as content, which has increased the visibility of stock agency sites, and their associated rankings. While agency websites now outperform my site, my overall traffic has been cut in half. However, the ratio of traffic to buyers has remained constant, further supporting the claim that price is not a factor. I just need to boost my rankings again. But that's another topic.)

The photo licensing industry has been in a downward spiral for reasons that have only to do with their own lack of economic analysis and objective research. It is certainly true that there are price-sensitive buyers, but the far greater factor in selling images is search engine ranking. If you solve that problem for yourself, then you needn't worry about pricing.

And this is primarily why I've continually called for stock agencies to partner (or merge) with consumer-oriented photo sites. Getty should acquire Flickr from Yahoo. Corbis should acquire Smugmug. You name the photo-friendly consumer site, and there's a poorly performing stock agency that should either acquire them, or be acquired by them. Once stock agencies find themselves in a better-ranked position that yields more traffic and user activity, they will find that price is not the factor they thought it was.

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