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Tuesday, March 13, 2007

Yet Another Getty Analysis

I was sent an email with a link to this item on stock photo talk, along with a request to comment on what I thought Getty's was up to.

The entire comment from this person can be summarized in his closing paragraph:
Unless Getty can keep these photographers happy, (some of whom are industry "celebrities" in their own right) the chickens will definitely come home to roost.

The sentiment expressed here makes good business sense when the industry is comprised of many smaller agencies who compete with one another. In that context, the quote above applies: an agency needs to keep its contributors happy, and it needs good content to compete with others.

But the segment of the photo business market that is Getty is moving into is that of the photo commodity market, where few if any of the old rules apply anymore. Here, what makes or breaks a company has little to do with the photographers. The only things that matter are how many other companies are in the field, and which ones control the channel.

The big paradigm leap that many photographers have yet to make is the fact that the commodity market exists, that the rules are different, and that Getty is moving towards it. Its recent activities--specifically, the acquisition of other companies--is clear evidence of the migration. Their need to make a transition of some kind is clear: as one studies the economics of various business models from small (down to the individual) to large (the size of Getty and up), there is a distinction (and delineation) between where the focus of business lies, and beyond a certain size (or as the industry itself grows beyond a certain size), the business models begin to shift. Regardless of success or failure, the outcome has nothing to do with whether it was wise to have migrated. What matters is what they chose to migrate into, and how well they executed on that transition.

For a discussion on why Getty must migrate and what the future of the industry looks like, see my blog entry on why Corbis won't go public soon, and the future of photo agencies. The question for Getty is: is their chosen business model one that can work in tomorrow's photo climate?

The best illustration (and explanation) of Getty's current strategy is Microsoft. During the 1980s, MS achieved a certain critical mass of users because they had finally succeeded in becoming the dominant operating system for the PC. In order to protect this position, they couldn't really depend on their own development staff anymore. It would have been futile to try hiring enough engineers to produce the products they needed in order to maintain market dominance. In fact, this had less to do with what Microsoft could produce, as what was offered by every other company they were competing with. Thus, their strategy was to use their newly found wealth, size and influence to buy up their competition. They went on a shopping spree, gobbling up vast numbers of companies who had very interesting and innovative technologies, much like you see Getty doing today. Often, the companies MS bought were gutted, and their products subsequently "shelved,," despite how beneficial those products might have been to the end-user. In some cases, MS would incorporate the technology into their operating system, but most people never saw the large number of acquisitions that MS did for no other reason than to preserve their industry dominance. And when they couldn't buy a competing company, they would offer a really cheap (usually free) version of the same thing so as to keep the user committed to Microsoft. (That such an act might put that other company out of business was a sad, but real part of business.)

This can lead to outcomes that can work for and against the end-user. On the positive side, the cost allowed the world to adapt to new technologies more quickly than might have been possible if there were many competing products. Similarly, by having a unifying operating system, interoperability among disparate vendors was more easily achieved (though, not without some headaches). On the other hand, by stifling a great deal of innovations from competitors across the supply chain, the best interests of the end-users or other businesses suffered. This is why we have anti-trust laws, to keep companies that achieve a certain size in good standing as corporate citizens. Granted, this isn't perfect--and there's a fine line between when a company is on one side or the other. You don't want to stymie companies that do well simply because other companies find it hard to compete. And market conditions are also such that a company can lose its dominance, simply because it fails to execute properly. IBM was once considered a candidate for forced break-up back in the early 1980s, because they "owned" the computer mainframe market, which was the dominant back-office computer back then. The PC was the answer to that, and the problem took care of itself. Indeed, even Microsoft, with its predatory practices has been subject to anti-trust lawsuits, yet most tech industry analysts agree that they are on the defense now from new emerging businesses models, currently lead by Google. (And now you see Google acquiring companies left and right.)

So Getty has a very short list of options available to them. And unlike Microsoft who had a much longer period of time in order to gain their market dominance, Getty's window of opportunity is much smaller. High on the list of liabilities is the fact that photographs have many attributes that make it a difficult product for a very lage company to make money (as opposed to a smaller company, which we'll touch upon later). It's a commodity with infinite supply; there are an infinite number of suppliers; and there is a very low barrier to entry by competitors. As such, selling photography as a commodity on a very large scale has less to do with the quality of the product as it does on controlling the channel. This is where Getty sees opportunity: it doesn't need pictures beyond a certain minimum quality to control the channel, nor does it need happy photographers. It just needs to shelve the competition. There are plenty of newbies who shoot "well enough" that are eager to get in, so it's not like they can't continue to produce product. (Just read any photo discussion group on stock photography--the most entries are from those who are wondering how to get into a stock agency.) At Getty's size, "star photographers" aren't needed except for a few token names to parade to the press and to serve as icons and mentors to the up-and-coming armies. (This is an area where photography and technology clearly diverge--poor engineers can ruin a tech company.)

The entire reason why Getty is doing this now is because of that short list of options available to them. First, they still currently have cash and stock valuation that's high enough to use as cash. Yet, more importantly, the window is closing.... or should I say "opening" too quickly. There are many bets as to what the industry will morph into, but Getty's strategy is to be there, whatever it is, and be the one best poised to control it. At the moment, the market is still fragmented enough, and no one else has the money to attempt it.

Whether you believe this strategy may work, this is what they're doing. And when you consider it, many question are answered:

No, Getty does not to improve how they approach their contributors. They are not needed to dominate the market.

No, Getty does not need to view image collections as valuable resources. Microsoft didn't do it with the products they acquired, and they achieved market dominance.

As for celebrity-based image collections with perceived long shelf-lives? Well, you answered the question yourself in your posting: "the images are only timely for so long." Strategy: better to get them out of the way now before they become future liabilities.

Now, for publicity's sake, Getty would never say anything like this. Just as Bill Gates would speak constantly about how "vulnerable" they were to competition, and how that are innovative, and how they are so big because people love them, this sugar-coating didn't hide the reality of their business model. Any company has to put its best PR face forward in the face of mounting criticism. Accordingly, Getty will counter that they do treat their photographers fairly, they will always have at least a facade of name-brand photographers on staff to parade to the press, and that magazines are satisfied.

And this strategy works: Microsoft has plenty of passionate, loyal, and (most of all) vocal fans, who believe they really are doing the industry a lot more good than harm by what they've accomplished.

With all that said, I bet you think I agree with this approach. Or, that I think it'll work. After all, the model that Microsoft used could be done again, right?

Not so fast. While I do believe this is what Getty is up to, I do not believe it will work.

First and foremost, unlike software and business productivity, where MS was able to corner the market because companies were so locked in, both in low prices, and legacy investment, photos are quite different. The list I provided earlier applies: that it's a cheap and easy commodity to produce on a wide scale. The most compelling difference is that photographs can be made by people who didn't graduate with Degrees in Computer Science. Getty's absolutely right in their perception of photography in this way, but they are forgetting the other sharp edge of that same sword: it's too easy to enter the market. And as photo-sharing sites and other social networks have proven, the sources for images is growing faster than Getty can possibly keep up with through acquisitions. They may be racing to control the channel, but that channel is growing too wide, too fast.

This is the main reason why I think Getty will ultimately fail with their current strategy. Also, it's for this reason that the government would never try to pursue any kind of anti-trust claim against them, even if they acquired Jupiter, or even Corbis. Sure, the media would make a circus out of it, and for a short while, it actually would be a controlling monopoly. But in the end, the government will have to do an analysis on the time it takes to bring a case, and how the economics of the industry will change during that timeframe. The quickly shifting direction that the photo industry is taking is such that other players are coming into the market too fast for any one player's dominance to be maintained for long, or that their dominance (even for a short period) would have a materially adverse affect on it. That is, the government would have to somehow claim that buyers are being injured somehow, usually by spiking up prices. But regardless of who the biggest players are, or how large they are, there are so many other sources for photographs, that they can't possibly control prices. And if they can't do that, where's the legal harm in being the monopoly? (Arguing that photographers aren't paid enough is not a legally viable defense.)

What this boils down to is that Getty is making the same miscalculations on their market analysis that MS did about the tech world. Bill Gates was recently quoted as saying, "We had no idea that an advertising model had such huge revenue potential." In fact, Bill Gates has a long history of miscalculations. His earliest faux pas is his famous saying that "the PC will never need more than 640K of RAM." (That was in defense of DOS's limit that it couldn't access more memory on a chip than 640K.) Today, you give away gigabyte chips for halloween to giggling toddlers (who actually know what to do with them! Later, gates discounted the viability of the internet: back in the early 1990s, MS was pushing its own "Microsoft Network" and had a white paper they gave out at tradeshows titled, "Why the Internet Won't Work." In those days, however, MS was still big enough--and the internet still small enough as a business model--that it was able to jump tracks quickly enough to maintain desktop dominance once it became clear that MS had erred. Some say that MS is now too big to change direction quickly enough or efficiently enough to correct their latest miscalculations of the market, let alone recognize them. But, this remains to be seen.

And this brings us back to Getty: they are still small enough, and the burgeoning photo market young enough, that they could achieve market dominance if they chose the right direction. As I pointed out in recent blog posts, there are two main opportunities in the photo space that no company of substantial size is taking advantage of: pricing intelligence and efficiencies for one, and the mass-market model of photo sharing/licensing sites as another. There are companies doing that, but they are currently not large enough to control the market.

What does all this mean for photographers? Well, first and foremost, stop thinking it's all about you. Large companies really don't need you the way you think. The more you believe you're a chicken coming home to roost, the most likely you'll be the one on the chopping block.

There are two ways to deal with this.

First, change your perception of how you view the business side of your job. For example, in all the years I've been in the tech world, I have never heard a software engineer say, "don't make FREE software or shareware! You're hurting the market for everyone else!" In fact, the very objective of most start-up tech companies is to get a footing by competing in any and every way they possibly can to get visibility and users. The makers of the popular video game Doom! became mega-millionaires because they allowed the first few versions of the game to be distributed for free over the internet. Then they charged money for it, resulting in billions of dollars of sales. Myself, I made a free version of my internet-based email software for five years (1985 to 1990) before I started to sell it for money (and then selling out to a public company, where I got my real lessons about financial analysis in the business world).

Next, don't look at price as the beginning and ending of the photo business. (See my previous blog entry for more on this, as well as this article.) Building your career is about a lot more than just submitting your images to a stock agency and being expected to get (what you believe to be) fair compensation.

Lastly, see the photo business world for the reality that it is, not as it used to be. Accept that business models change, and that the industry does too. Today, it's industry bifurcating into two distinct groups, creating opportunities at both ends. The mega-large distributors, and the smaller end businesses, usually individuals or small-scale specialty shops. At the big end, we'll see community-based photo-sharing and networking sites (once they get around to building the economics into their back-end web infrastructures). Sure, they'll be the large megastores, but that doesn't mean that smaller-scale operations won't work.

Indeed, the very nature of this bifurcation means that good individual photographers and small-scale photo shops will regain much of the businesses they lost to the larger agencies as they grew up. Here is where the name-brand recognition ("celebrity star power") really can work for you. This domain will be sufficiently large to garner a substantial group, and is probably where all the "seasoned professionals" who are currently writing comments like the one above will end up. The home that the chickens will come home to will be the new nest they build outside of the farm--presume they bother to leave the farm before they get to the chopping block. Unlike the mass distributors, success as an individual is merit-based, either through good photography itself, or good marketing, or good PR, or whatever. You only have to be good at one or more of those items, not necessarily all of them. An individual who charges more for the photos that clients "really" want, doesn't have to corner the market, or worry about price competition from microstocks or even the megasites. It doesn't even require huge sales volume. Just enough to take care of oneself. This is precisely how my business is done.

In summary, next time you think about Getty, don't get your undies up in a bunch. As the saying goes, "you'll see who's naked when the tide goes out." I suspect Getty's large acquisitions is causing them to strip a lot of clothes off in hopes of changing into a new suit under water while the tide's up. Whether they succeed is really not the concern of most photographers. My best advice is to adopt a new perception of self. Tech people had no illusion about what Microsoft was up to, but they didn't pacify themselves with feelings that MS would go out of business simply because their software wasn't as good as it could be, or as the competition. Nor did they dig their feet into the ground and complain that there were no jobs or opportunities. Tech people rise to challenges, and pioneer new ways of doing things and new business models. Photographers' day will have arrived when we never hear a peep out of anyone because Microsoft got an image from an average guy's Flickr stream, or because microstock agencies sell images for $1, or because Getty is having fire sale on its images in order to raise money again.