Understanding the business of Microstock Photography

    Understanding the business of Microstock Photography
    - what makes the microstock model so successful that it overhauls the industry?
    by Lance Lee | www.offstone.com
    February 9, 2010

    How did the microstock agencies achieve their phenomenal success and give the stock photography giants a run for their money?

    The short answer: By running microstock business the wal-mart way
    Images are handled like commodities. They reach out to amateurs as suppliers who are willling to take less for their images. Discounts are given for clients who are willing to spend more. Economy of scale increases overall profit margins.

    Here's an overview of the features of the microstock business model that accounts for its higher profit margins and roaring successes.

    Although it might read like a text-book page of a business case-study, this article's purpose is to help photographers realise how the microstock phenomenon has changing the industry. By understanding, hopefully we can come to terms with the changes and adapt to survive, or even to excel.


    An Overview of the Microstock business model

    1. By behaving more like a portal and less like an agency.
    Microstock sites sell images online with fixed prices. Licenses of images are sold as commodities. They are essentially functioning more like a portal and less like an agency.
    As a portal, they do not have to hire huge sales teams to negotiate prices, answer phone calls, make sales visits or provide customer services like what traditional stock agencies do.

    2. Pushing expensive work back to photographers
    In traditional stock agencies, they hire crews to help categorize the images and tag them with keywords.
    For microstock, photographers have to do their own keywording for the images they upload.
    Microstock agencies save a huge chunk of costs by pushing this area of work back to the photographers.

    3. Selling by volume allows them to enjoy wider publicity and better branding success.
    For every rights-managed image that is licensed, dozens of microstocks images are published.
    A wider buyer base with a much larger volume of sales mean that it is easier and cheaper for microstock agencies to build their brand awareness than Getty, Corbis or other traditional stock agencies.
    Where stock photos are published in magazines and newspapers, more credits acknowledged iStockphoto as the source than there are for its parent company, Getty Images. No wonder more readers know about iStockphoto than Getty Images

    4. More goes to microstock agencies for each sales made

    Stock portals like iStockphoto.com take up to 80% of gross sales, they pay only 20% to non-exclusive photographers (Exclusive photographers are offered 40%).
    By comparison, traditional agencies pay between 40% to 60% of the sales to their photographers.

    5. More recurring sales through subscriptions
    By doing away with managing rights, microstock agencies can adopt payment schemes where customers get more value for money by paying monthly subscriptions.
    Rights-managed stock agencies do not have this option.
    Monthly subscriptions is a powerful tool for microstock agencies to encourage their clients to spend more and remain loyal to the brand.

    6. Economy of Scale
    By encouraging bigger volumes of sales through lower prices, the cost of selling each image goes lower for the microstock agencies. Profit margins go higher.

    7. Developing a new segment of market

    By offering affordable images to a broader base of designers, bloggers, churches and non-profit organisations who would never pay for the more expensive rights-managed or higher-end royality free images.
    Microstock agencies tapped into a market that was never touched by the traditional agencies.

    The rise of microstock agencies as the "Wal-marts" of photography is really inevitable.

    Digital cameras are getting cheaper yet better. The skill levels of amateur photographers are generally improving, thanks to technological advances and a greater interest in photography. The barrier of entry to enter the profession is getting lower as well. More amateurs are thinking of earning from photography and microstock portals serve as a convenient tool for them. There is an overwhelming supply of amateur photographers who are net-savvy and are very willingly to sell their images for less.

    Facing this inevitable rise of microstock photography, what is the future for professional photographers?

    Please read the next article in the series:
    The Goods and Bads of Microstock
    How it affects everyone, especially professional photographers