Selling Stock: it's about search rank, not price

Yesterday, I reposted an article I originally wrote in 2007, discussing the misconception that microstock pricing is what's driving down overall license fees.

I got a few emails that still challenged my assertion, and it appears I haven't emphasized strongly enough the most compelling arguments supporting this thesis.

All of my research supports the premise that the primary cost of licensing images is not the license fee, but the overhead associated with finding and acquiring the right image. The overhead and administration of a project that would involve photo licensing shows that the actual license fee ranks very low on the budget -- hence, low on the buyer's priority list. My 2007 surveys of buyers showed that.

If the person responsible for finding images for a project is paid $60/hr, and this person spends 2-3 more hours looking for a photo just to pay $1 vs. $50, this translates to paying someone $120-180, just to save $50. People who control budgets know that the license fee for photos is negligible to the total cost of production, even at the traditional stock photo rates. The bigger the project, and lower the proportion of the license fee for the image(s).

Those who sell images are dropping their prices because they're looking at their competition, not the buyer. Further, there is absolutely no evidence to show that sites that have lower prices sell more images. There is definitely a perception that there's a correlation, but that's because people are comparing apples to oranges. Getty sales vs iStock sales are not apples-to-apples because the two entities vary dramatically in search engine results (and other important factors). People talk about microstock sites more, and they link to them (in blogs, discussion forums) and the quantity of images on microstock sites is rapidly growing. So naturally, these sites get higher rankings in search results. Search engines don't rank sites because they have lower prices. They rank sites by size (content), links, and a black magic formula that is best described as "dispersion of discussion in and around the net." In short, microstock sites have more content and get more attention. Hence, better rankings, which translates to more traffic, which attracts more photographers to submit images to them, perpetuating the feedback loop.

In my 2007 survey, those who indicated they were aware of--and use microstock sites-- most don't go to them because the prices are lower; it's mostly because those sites ranked higher in search engine results, where the buyer starts.

Because search engine ranking drives traffic -- especially the untapped (and unaware) segment of the global economy that doesn't use stock agencies -- and because the greatest cost in photo acquisition is time, not the license fee, 90% of the time-savings is the image results the user gets on that initial search. If it takes the buyer to a stock agency site -- microstock or otherwise -- then the deal is nearly done. Price notwithstanding.

This is primarily why I have advocated for years that stock sites should focus their entire effort towards optimizing search engine rankings. While they could have done something about it in the past, the rise of social networks and the plethora of image-related websites and apps has made it impossible for agencies to rank highly on image-search rankings on their own. In today's market, they have no choice but to either partner with, or acquire/be-acquired-by a social-networking site.

The Getty<->Flickr combination is a very pragmatic example. Yahoo is circling the drain, and it needs to shed its non-performing assets and focus its attention on ... something. Whatever that is, it isn't Flickr, and there aren't a lot of buyers that would be interested in that asset, except for Getty or Corbis. The combined product would involve retooling Flickr to be far more socially active (to keep up with modern social networking trends), and to integrate licensing/acquisition into the user/social experience. Most importantly, to provide incentive programs for photo submitters to participate economically. (I've written a great deal about this in the past.)

Of course, perhaps Yahoo should just buy Getty. Facebook is getting into the game, which tends to lead one's eyes towards Google, but they are still struggling to play catch up in the social-networking arena, and their photo division is not run by someone with a disposition towards stock or an awareness of the economics of the photo industry. The company is more interested in building assets that support their advertising model. There's no evidence that "licensing" is on their radar--a pity because they would be on the forefront of the Web 3.0 economic model, where images would play a huge role. (See here.)

In the meantime, there's a $25B shadow economy in peer-to-peer photo licensing that's up for grabs. (See here.)

So, you ask, "how do you convince agencies of this?"
I've been trying since 1998.

(For fun, see this web archive of my site from 1999 discussing this topic.)

Myth about Microstock Pricing's Effect on Licensing

This is a repost from an article I wrote on March 8, 2007. It came up in a discussion I had with a stock agency today, and found that much of what I wrote is still true today.

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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.

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 Total Size of the Photo Licensing Market —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 the visibility (and rankings) of most stock agency sites, and they do nothing to fix this problem, largely because they don't think they need to. Again, they think that consumers don't buy photos, that only media companies do. It's a self-fulfilling prophesy: 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.

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. 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.