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You Are Here:  Home  >  FAQ  >  Blogs  >  Pulling the Flickr sword out of the Yahoo stone

Pulling the Flickr sword out of the Yahoo stone

Wednesday, January 30, 2008

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In today's New York Times, this article talks about Yahoo's cutting of 1,000 jobs due to its dwindling revenue and profits. Jerry Yang has said that it will focus all its resources on three objectives: "becoming a starting point for consumers on the Web; making the company a top choice for marketers seeking to place ads on sites across the Web; and opening Yahoo's technology infrastructure to third-party programmers and publishers."

Yet, the article also had this very understated snippet: "the company has said it would de-emphasize or shut down a number of other services, including photos, podcasts and a largely unsuccessful social network."

The obvious question is, what does this mean for Flickr? But the answer is complicated by an obvious observation: Flickr is rarely ever mentioned in any news stories about Yahoo. Whenever something is written about Yahoo, or there's any discussion of its finances, almost all of its business units are mentioned. But never Flickr. The closest I ever see are statements like the above--photos are bundled with "other services." Nothing will ever happen to Flickr unless something happens to Yahoo. That, or someone realizes Flickr's true inherent value and forces the company to sell it.

I've spoken all-too frequently on how Flickr is one of the very few photo-asset powerhouses on the web that could monetize its content in ways that would exceed even modest expectations. It has the most valuable untapped resources than most any other photo property on the net, and with all due respect to the photographers who post their photos there, it's got nothing to do with the photos. It's merely the extremely high value of the traffic that goes there. Yes, there are great photos too, and this is partly why it gets traffic. But as anyone that knows how the fluid dynamics of internet traffic work, there's a feedback mechanism involved, and the "quality" of the photos is but a tiny factor in why the site gets the traffic it does.

Why do I think there is business opportunity? I think of Flickr as the tiny little store that's right on the corner of First and Main street of a large city, nestled at the foot of towering skyscrapers on either side. Every month, millions and millions of people walk by, often stopping in to look around before moving on. The owners of this little shop let customers come in, sit on soft sofas, and chat. Many of them pay $30/year to chat a lot, which helps the little store pay its rent.

But, what happens if the large mega-company that owns this prime real estate is in big financial trouble? Somewhere, somehow, its investors are going to say, "What's up with this little store with the sofas? Why aren't we selling high-priced coffee or pastries or something? Why is this prime real estate being ignored?"

Though the analogy to physical real estate is easy to make, the twist is that, unlike a storefront that can sell anything, Flickr only has its value as prime real estate in the photo realm. And given the extremely poor performance of Getty, Corbis and most other stock agencies, it's no wonder that no one in the financial community really cares (or asks) about Flickr as it pertains to Yahoo's business units. The perception is that photography is not a revenue generator.

The ramifications of this fact never really hit me as hard as it had when I was at Yahoo's headquarters in San Francisco at the end of MacWorld to see a demo of Dave Winer's Flickrfan. I wasn't really there to see the product--my interest was in meeting someone (anyone) that had any relationship to Flickr to get a frank view about how Yahoo regards its own popular photo-sharing site as a business unit. We all know it's a fun, wonderful place to go, but what about it as a profit/loss center? What is expected of the group? Do they only need to be self-sustaining? Do they have revenue objectives that must be met? What's the long-term objective of the unit? What kind of oversight does it have?

I was fortunate to meet someone who helped me understand all of this. He was a pretty high-level person who was intimately familiar with Flickr, but more importantly, was on the corporate side of Yahoo, and is involved in many such acquisitions. To be fair to him, he had no idea who I was, nor did I want to tell him, so he was probably far less guarded than he would have otherwise been. I looked like just another tech weenie at the Mac conference, wearing my usual understated black hacker t-shirt. This one said, "There are only 10 people in the world: those who understand binary numbers, and those who don't." He didn't get it.

Anyway, because of how casual and unofficial it was, I don't want to say his name here or hold him to his word about his statements. I'm sure if I said I would blog about this, he would have not said much of what he did, or worse, directed me to a PR person (who are notoriously closed).

In any event, the conversation went pretty simply: Flickr is really regarded as a completely autonomous tech group with no orders or objectives to do anything other than be a fun place for people to come and socialize about their photos. They have no financial responsibilities back to the mother ship, and Stewart is free to do whatever he wants with no long-term objectives. When I asked whether there was any plans to ever get into licensing or other forms of monetizing its content, he said that Stewart has thought about it, but they are enjoying what they're doing too much and such a move has dubious financial returns in a market already dominated by other very successful companies.

Other successful companies, huh?

Many other tidbits and details were exchanged, but it was already pretty evident that my prior observation was upheld: there's a broad misperception about the photo licensing business, to the point of being entirely dismissive, complete with hand-waving motions as though to swat at the idea as if it were a gnat. Those not in the photo industry are totally ignorant of the field and assume there are very successful companies doing it. Those in the financial world see the downward spiral of existing market leaders like Getty, fueling the same "indifference" perception.

And yet, the irony of all this creates a weirdly shaped worm-hole of an opportunity: because no one outside the photo industry has ever seen such a model ever work on the internet, and the people inside the photo industry are so bogged-down by pre-internet era business models, the solution is to enter the market with new blood, and be sure that whoever takes it understands the photo business enough that it isn't foreign territory, but are not veterans of the industry that carry heavy baggage and world-view perceptions that their own tunnel-vision cannot be overcome.

Doing so isn't easy though, because you first need to clear the perception hurdle: that it can't be done. Or more accurately, that it's a specialized niche industry that doesn't really "need" the internet, other than taking advantage of it as a payment and delivery mechanism. Most believe that those who license photos are focused, niche industries (large, though they may be) who also have their resources for acquiring images; that they don't really need the net any more than they ever used to.

Of course, that perception is wrong. I've already written copiously about the total size (and the larger potential size) of the photo licensing market, so I won't repeat it here. But it serves to note that I see Flickr as of the most undervalued real estate plays on the internet today, provided that the owner actually understands why the current players (Getty, Corbis, et al) have failed, and that the owner has the technical and cultural wherewithal about the internet to execute. It requires a cross-over of understanding between the internet as a business model and culture, and the photography business, each of which are specialties that (as I mentioned) have rarely ever merged before. And therein lies the real challenge: you can't tap into existing photo-business executives at all.

Can the sword really be pulled out of the stone? If it can't, it has no value. Not only do I think it can, it's an inevitability. And, all this is precisely what makes Yahoo's misfortunes an enormous windfall opportunity for Flickr. If Yahoo were to put it on the action block, someone else can give it a future, to make real money for itself and its users too, all while retaining the great user experience that it already is.

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