Dan Heller's Photography Business Blog Industry analysis from www.danheller.com

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Wednesday, July 18, 2007

The Solution to Getty's Woes

In my last blog post, I discussed proper methodologies for better estimating the total size of the stock photo licensing market. Using "asymmetric information," a term coined by Joseph E. Stiglitz, winner of the Nobel Prize for economics, one can extrapolate a truer (more accurate) assessment of market's size than what conventional methods produce. The byproduct of such analysis can have such broad and sweeping implications, that it often results in a reassessment of the underlying paradigms for a given market or industry.

Given that, it requires an examination of the very business paradigms adopted by the leaders of the industry. In this case, photography. Are companies like Getty potentially missing much larger opportunities? If so, to what degree, and to what net effect?

To answer that question, one person suggested that I dig deeper into Getty's 10-K filing, where they discuss their strengths and weaknesses, as they perceive them, arguments which they use to support their business strategies. It is my opinion, as this blog posting will explain, Getty's statements about the market and how they perceive their position in it and their competition are so far off the mark, I believe they are in worse condition than I had previously thought.

The good news is that I have a solution to their problem, and I'm very serious about it, too. But first:

How Wrong Can Getty Be?
For that, I cite Getty's own 10-K filing with the Securities and Exchange Commission. You can read it here: http://www.shareholder.com/Common/Edgar/1047202/1193125-07-134473/07-00.pdf

This seemingly innocuous one-liner has very big implications:
"The estimated useful lives of imagery are determined based on the number of years over which they generate the majority of their revenue.

Getty's assumption is that, over time, their buyers will all have eventually seen their base of photos, which then need to be cycled out with fresh new images. In other words, as the revenue for a given photo diminishes, its "useful life" expires.

There is only one reason why this might happen: their list of clients is so small, that they actually can go through all their images. That's right, Getty's assumption of the universe of photo buyers is so small, that they can be characterized as a fixed set of companies, mostly from the media and advertising worlds, that can actually go through all their images. Sure, those are sizable and lucrative clients to be sure. But they are limited. This means their potential for growth is limited. And no one wants to buy stock in a company whose client base doesn't grow.

Now, if Getty stated that such clients were only their current market, but that it was but a fragment of the overall market, that would be more encouraging, as it would at least suggest that Getty's growth opportunities are ahead of them (and that they recognize it).

But, they do not say so--they explicitly say that this is the market. They not only assume that such entities represent the majority of buyers, but also the highest-paying ones, which is also a fallacy (discussed later). To make an analogy, their perception of the total size of the market is like the solar system, and they own "Jupiter," the largest of all the opportunities. Their entire business model is focused on them and them alone because, as they imply, nothing else matters.

Yet, they're making the bad assumptions that I've been talking about a lot in my blog lately about the size of the stock photo market. They believe it to be about $2B, whereas I believe it to be several orders of magnitude higher than that. Now, whether you believe my analysis or theirs, you still have the problem that Getty's own assessment of their own market is, by implication, static. Worse, that they have to cycle photos out implies that they've reached its capacity. So, answer me this: where's the growth?

Perhaps you're somewhere in the middle: you don't necessarily believe my analysis, but you agree that it's bigger than Getty thinks it is. I would still argue their misperception of the market has resulted in poor management decisions... like having to cycle out photos because they believe they have a "lifespan" limitation. This is a bad decision because, if the licensing market is "somewhat" bigger than they say, why are photos having limited lifespans? In other words, if their business was growing, it would imply that they have a steady stream of brand new users who have not yet seen those images. For those users, every image on their site is new, and if that's the case, why the need to "cycle out" old ones? The simple fact that their own financial analysis shows that images have a lifespan defines the very premise that their audience is limited, and to a rather small (comparatively) market segment that isn't growing.

Shameless Anecdotal Data
While I rarely like to point to incidental and anecdotal data, this particular story leads to a very important point on this very subject:

It just so happened that yesterday, someone licensed the oldest photo on my site (shown here). I took when I was just a tourist carrying a kodak disposable camera at Niagara Falls, long before I ever dreamed of being a photographer. The page this photo resides on is here. This also happens to be one of the oldest pages on my site, made back in 1996 (though I shot the pictures back in 1994; I keep it on my site for posterity). You'll note that this page has no high-res images, nor a shopping cart to even buy those photos. Yet, someone actually emailed me specifically to ask to buy it. Price paid: $450.

Oddly, the price paid for this photo for the use in question was far more than what a "sophisticated buyer from a media company" would ever pay. And this has always been the case for consumers licensing photos: they pay far more than the sophisticated buyer does.

But here's the point I'm leading to: older pages on my site tend to get more traffic (and thus, licensing) simply because they are indexed better by search engines, and have a much higher likelihood of being linked to by other sites. This is no secret--Google and others all give heavy weighting to those pages on the net that are older because it implies longevity. If there are links to those pages, then the ranking is even higher. In fact, that dreadfully awful page of miserable niagara falls photos is linked to by five other sites on the internet (according to google). What's even more shocking is that a search for "photos of niagaga falls" has my awful photo page ranked at #4! (Can you believe it?)

And that's just the one page on my site. Consider all the pages on my site that links from other sources on the net. Using tools provided by google and yahoo, the range of links on the net that go to my site range from about 70,000 to about 115,000. The number of links that go directly to my images are not included in those numbers.

Now, the point: Sites that link directly to photo pages owned by Getty? Zero. This is partially because they don't set up their photo pages in ways that allow or permit such links. Their entire system is run by a database with a web front end that contains no static html pages that people could link to if they wanted to. (Well, they could, but to do so is beyond most people's technical expertise.) But the real point is that, because Getty believes their images have a lifespan, they are removing extremely valuable content that would otherwise be working in their favor by getting higher and higher rankings in search engines, thereby generating traffic to their site.

In my mind, this is yet another example of Getty's squandering opportunities that they don't even realize exist. Some have said that I am giving away secrets. Well, you can only do so if someone understands the market in the first place. They simply don't understand the market.

More Getty Statements
Now, when you think about the world of buyers in the smaller solar system that Getty does, and you compare it to the larger universe that is the internet, tell me what you think of statements like this from Getty's disclosures:
We believe that the principal competitive factors are: name recognition; company reputation; the quality, relevance and breadth of the images in a company's collections; the quality of contributing photographers, filmmakers and other imagery partners under contract with a company; effective use of current and emerging technology; customer service and customer relationships; pricing and licensing models, policies and practices; and accessibility of imagery and speed and ease of search and fulfillment.

Since Getty's perception of the photo-buying universe is limited to sophisticated buyers from the media and advertising worlds, then I agree with the above assessment. But if you recognize the larger opportunities that the net provides, only a few of those things matter. To the point: absolutely no one who licenses my photos has ever heard of me or my website before they got the image. I get about 10% return visitors on average, but the bulk of sales are always to brand new people. It does not require name-recognition (by buyers) to sell photos.

Now, I'm not suggesting there's no value in name-recognition. There clearly is, and I've spoken about it frequently. But, in a world where most people have never heard of photo licensing, having a "name" is as irrelevant as having a McDonalds restaurant in a land that's never seen westerners. Sure, you want to build the brand, but unless and until you do, that's not what's going to bring in customers.

European companies are constantly trying to penetrate the American market with products and store fronts, yet many fail because they make the same mistake that Getty's making: they believe their name-recognition in their home country maps over to the US market. And that's one major reason why Getty's reliance on name-recognition (within their smaller market segment) is a catastrophic error in strategy in their 10-K statement.

When is name-recognition important? As I advise photographers that ask how to build their web presence, name-recognition is vital if you want people to link to you. One needs to be known for something; be an authority on a subject. You want people to quote you. You want to write about things and put the content on your site so that people will reference it. And if you're successful at this, then other sites link to you, which gives your site higher rankings in search engines, which brings the traffic, which allows the content on your site to be seen, which turns into sales to buyers who have never heard of you.

Buyers end up on my site not because of my photography, but because search engine rank me highly, and they do so because you're reading this very text right now. You aren't my client, but by reading this, you're helping me get clients. (While I appreciate it, it's but a grain of sand in the wider collection of my SEO tools.)

By contrast, Getty has absolutely no appeal to anyone outside of their tiny planet of customers and are doing absolutely nothing to generate more interest because they don't really understand the web and how it works. They thought that buying iStockPhoto would do it, but this is more of the same. All microstock companies suffer from the same mis-perception of the market: that it's limited to the same buyers that Getty thinks it is. They price images for a dollar each because they're all struggling to compete against a fixed, static, limited and sophisticated audience of photo buyers. While they're fighting for attention with them, I and many photographers like me are licensing crap photos (in my case) on personal websites for hundreds of dollars per image to the real market of photo buyers: the general public. Which brings me to ...

The Final Punch
To further illustrate how out of touch Getty is, their 10-K goes on to say:
There are also hundreds, if not thousands, of small stock photography and footage agencies, image content aggregators and individual photographers throughout the world with whom we compete."

"...hundreds if not thousands"? Try millions, if not tens of millions. Many of them are photographer sites like mine, but they are also photo warehouses full of images that represent millions of other people. Yet, it's critical to understand this key factor: it's not the number of competitive sites that license images, but sites that have photo content that potential buyers are using instead of going to Getty. Because Getty is not getting the traffic that is going to other sites, those are lost financial opportunities.

What kind of opportunities are there?

I consider my site to be a very small, but working prototype of a consumer-oriented licensing site for one and only one reason: I attract unsophisticated buyers. If I were to extrapolate my own personal web and sales data to that of Flickr's, were they to enter the stock licensing business, I would use ratios that map my data to theirs. I.e., if I take the ratio between the total number of photos on my site to the total number on Flickr's, and make a similar mapping of traffic between my site and Flickr's, and if I assume that Flickr licensed photos using the same license fees that I do, Flickr would yield about $1-2B annually. Granted, that's total revenue, which would have to split with the photographers, but that doesn't discount the viability of the business model.

Getty's Solution
I've criticized Getty for many things, and at the top of my list has been their needless acquisition of photo agencies. Photos and photographers are like weeds. You can't pick them fast enough--more will come. Getty's misunderstanding of this needs to be fixed. It needs to be replaced with a realization that value is not in the photos, but instead, in web presence. The photos don't matter--the only thing that matters is that buyers find them. And once they do, they are more likely to buy.

So, how can they be found? Well, as any web-savvy company run by a 22-year-old college drop-out knows, it's just like real estate in a tourist town: location, location, location. You can have a crappy store with cheap, overpriced products; but if you're on the corner of two busy streets, business will be good. Getty's in the back alley with great stuff for sale, but only the locals who live there are aware of them. They're loyal, but very small in the broader economic engine. The much larger population of tourists is totally unaware of them.

Which brings me to my solution for them: Buy Flickr.

Given Yahoo's troubles at the moment (and their similar ignorance of the photo market opportunities), I'm sure Getty could get it for a pretty fair price for all involved. This would not only show that they now "get it" (that the photo universe is what it is), but they would be armed with a web property and membership community (not to mention traffic and good will) that is perfectly poised to exploit this untapped market called the consumer photo buyer. Need help with this? Call me.

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Tuesday, July 17, 2007

The total size of the licensing market

Just how big is the photo licensing market?

The question keeps coming up because there is money to be made if one particular answer is (or is thought to be) true. Moreover, the answer to this question is even more important because if you have the right methodologies for deriving the best answer, you have solved the Gordian Knot for succeeding in this industry.

To illustrate how all things are connected on this pivotal point, consider that most industry analysts look at the total aggregate sales of all the known stock photo agencies, plus some statistical sampling of the independent stock market (small specialized agencies and such), and add it all up to get about $2 Billion. If you accept that as roughly accurate, then business decisions are made based on that assumption, such as whether Getty is truly a market leader worth investing in; whether other agencies have a chance at an IPO, or even catching up; whether start-up companies in the field can hope to ever raise money; whether market prices for various kinds of stock photos will rise or fall; what kinds of income photographers could ever expect to earn; and so on.

In other words, whatever the "industry" believes is an accurate number, the players within that industry behave consistently with that assumption. Go against the grain, and you're on your own. If you're right, you could win big, provided you execute your plan well and have enough backers to take the ride with you. These extra caveats are the reality that should make you think twice before being too much of a maverick and moving out on your own. Being right isn't enough--you have to have support and execute well..

Whether you want to win, or simply compete, the objective isn't necessarily to "actually" know how big the photo licensing market is, but whether the methodologies used to derive a potential range of plausible answers is genuinely sound. If so, that's a much better predictor of more important and interesting things, like: What trends are making more money? Are market prices really affected by microstocks? What kind of income should photographers expect to earn? What role do consumers play? So, when it comes to how current "industry analysis" determines how big the market is, what I'm interested in is which data they choose to gather, which they choose to ignore, and how do they churn the results.

Asymmetric Information
One fundamental problem with how traditional "old-school" analysis has been done (looking at only the sales of the major stock agencies and other larger photo suppliers) is a hold-over from the pre-internet era, when only entities that sold images were agencies and media companies. As obvious as this may seem to the junior economist in high school, this has proven to yield poor results more often than not. To properly and accurately gauge the economics of anything (including photo licensing), you must look at more than just "sales." There are other factors that contribute to the true size of the market. In fact, this is what Joseph E. Stiglitz proved when he won the Nobel Prize for economics. He, along with George Akerlof of the University of California, Berkeley and Michael Spence of Stanford University came up their analysis of markets using "asymmetric information."

As Stiglitz explains,
Market economies are characterized by a high degree of imperfections. Older models assumed perfect information, but even small degrees of information imperfections can have large economic consequences. Our models took into account asymmetries of information, which is another way of saying 'Some people know more than others.'

To put this into context that just about everyone is familiar with in today's world, there is the question of what is the total cost of the war in Iraq. Stiglitz and Linda Bilmes, a budget expert at Harvard, did an interesting analysis recently, which you can (and should) read here.

In it, they note that the Congressional Budget Office estimates that the total cost of the war is $500B. This includes the money paid to soldiers, the cost of weapons, and so on. The kind of stuff most people think about when they go to war. "Honey, we're going to war tonight, so be a dear and pick up some extra AK-47s at the market today, K?"

However, this number doesn't include a trove other related "asymmetric information," such as, for example, the cost of treating severely wounded veterans. At the time of his writing, this included roughly 16,000 people, 20% of whom had serious brain and head injuries. The cost of lifetime disability and healthcare the government will have to pay for years to come are not calculated into their original figure of $500B in the "total cost of the war." Using known data on the cost of treating people with these conditions over the course of their life expectancy, Stiglitz estimates that the government will spend between $500B and $800B.

And there's more asymmetric information: the fact that we don't have that money in the treasury now means that we have to raise the money in through taxes. But until those taxes are collected, the government has to use "borrowed money" (in the form of treasury bonds), and the interest that bond holders receive is paid by the government using--you guessed it--tax dollars. So, again, the costs of caring for the soldiers continues to rise, this time through interest payments. In fact, that $500-800B health care bill requires borrowing money that will cost another $100B to $350B in interest payments over the course of time.

This analysis goes on and on with other "asymmetric information." In the end, Stieglitz estimates that the true cost of the war ranges between $1.2 and $2 trillion. Yes, that's a 'T'.

Not surprisingly, those who are in favor of the war say that those additional costs are not "related" closely enough, and also not counted are the savings from not having more terrorist attacks, which cost more money. Those who are against the war say that money is going to be spent no matter what, so you can't just eliminate it from the "cost of the war" analysis. Indeed, even as the bickering goes back and forth on the merits of the war, neither side disagrees that the money is being spent--it's just how you frame the debate that matters.

And that brings us squarely back to the photo industry and the size of the licensing market. Asymmetric information helps paint a more realistic picture of what the true size of the photo industry is. Unlike the war in Iraq, there isn't a risk of personal safety, and there is no influence by politicians in Washington, so there shouldn't be the same kind of heated debate over the subject. There is only one reason to generate numbers: to establish financial opportunities.

But make no mistake, though: those with money in the game do have the objective of protecting their investments. That, or, to create situations where they can capitalize on data not yet known. And, as Stiglitz puts it, "some people know more than others," which puts the question forward: do those who are doing the analysis know more than what they report to us? I am not suggesting any malfeasance by any means. However, photography is one of the least regulated industries, ranging from the product itself, to the professionals in it, to the industries acting in it. This means that players have a vested interest in preserving not only their turf, but making all the other players believe the same things they do.

So, all the more reason to look at the way data is gathered and analyzed.

Holes in the Data
One thing people think about when they consider the size of the photo market is how many pro photographers there are. If you ask ten photo agencies how many photographers they represent, and you add them all up, you may get a sense of how many pros there are. But, if you ask a market research firm that talks to photographers, they'll tell you that most pros submit their images to about 6-7 different agencies, on average. Here, we have a case where the market research firm "knows more than the others." This kind of "imperfect information" is necessary to understand that the holes in the data are there. Now it's a question of finding them all.

Speaking of market research firms: they're the ones that say the size of the photo licensing market is about $2B. One way to test that would be to do random sampling of clients to see that actually purchased those licenses for the amounts paid (for the terms specified).

Yet, when other sources do that, they uncover sobering news that most clients get their images from additional sources beyond just agencies. Even as far back as the year 2000, research showed that 35% of photos were purchased from stock agencies, the rest were directly from photographers. Yet, they assumed that the photographers those buyers got their images from were professional photographers, and they weren't. (Though we didn't yet know that at the time.)

So, the industry research firms got some stuff right that showed the agencies' own analysis was off the mark; but independent studies showed that the industry research had flaws as well. And empirical data from that one study seven years ago also showed flaws in the independent analysis. Yet, with all these flaws everywhere, most people still look at the annual revenues by Getty and the other major players as indicators of the total aggregate size of the industry as a whole: $2B.

Now, I can understand that data gathering is an imperfect task, but basing your financial decisions on least viable of all the data is just plain dimwitted. One thing we can firmly establish, the market is not anywhere near $2B. In all the analysis I've seen, there is no evidence at all that surveyors have collected "asymmetric information," let alone calculated it into their analysis. I would be hard-pressed to believe that even those conducting surveys even know what "asymmetric information" is.

So, how does one measure the size of the stock photo industry from this point? Well, first of all, keep in mind that what we want to know is not (necessarily) the size of the photo market, just yet. We want to start with the methodologies of surveying. Like Stiglitz, we don't expect to come up with a firm number, but a range of plausible values, depending on the various qualities of the data we gather.

Data's Building Blocks
Analysis must start with an understanding of the most basic, fundamental building blocks of any market: the raw materials. For the photo industry, that's the camera itself. To that, I cite a recent announcement by Canon that they are building a $450M plant that will make nothing but CMOS sensors for its digital cameras. This year alone, canon will sell 28M cameras, 3M of which are sold to pros.

This presents two points to consider:

Three million pro photographers? That's already a lot more than what most "industry analysis" has ever shown. Some might argue that most of these pros are wedding, portrait and staff photographers that don't traditionally contribute to the stock industry. True, but by using asymmetric information by examining data gathered by the industry groups that represent such photographers, we learn that about 10% of their own revenue is now derived from stock sales, and that number is rising. The data also shows that these photographers are selling direct to buyers, not through agencies. Putting it together, 10% of three million is 300,000 photographers. We know that the total number of microstock members isn't nearly that many, so we can deduce that the "industry analysis" isn't taking their contribution of stock sales into account when calculating the total size of the market.

Ok, they contribute to the market--but enough to skew the numbers? Let's assume each of these "pros" makes ONLY $1000 a year in stock photo sales. 300,000 photographers (that use Canon cameras) at $1000 each for a year, that's $300M that isn't really being accounted for in industry surveys, which is 15%.

And that's only Canon cameras. What about Nikon? What about all the others? The total number of cameras of 8mps and higher is closer to 100M from all the manufacturers combined. Since we're likely to find a similar distribution of pros and consumers among them, and even assuming the conservative (but conveniently round) estimate that 10% of the buyers of those cameras earn a meager $1000 in a year from licensing, that suggests that 10M people will earn an aggregate of $10B from photo licensing.

Before you start thinking this is way out of line, pay attention to stories in the New York Times, USA Today, and other daily newspapers and magazines that tell stories about stay-at-home moms who are running photo businesses shooting everything from their kids to their vacations, and selling them online for extra income. The number of such stories is increasing at rates faster than ever seen before, as can be found using search features on the websites of major news periodicals. The cameras are clearly being sold, the stories about these home-businesses are emerging faster than ever, the vast accumulation of photos on the web is growing at astronomical rates. Is it "really" far-fetched to believe that 10% of camera owners may realize $1000 in one year from licensing?

But wait, there's more asymmetrical data.

So far, we've only counted the cameras that are sold to "pros." What about the other 90% that were sold to consumers? Just because they are not pros doesn't mean they don't contribute to the total size of the market somehow. To be as plausible as possible, let's be very conservative in our numbers: if only 10% of consumers earn $100 a year (yes, a measly $100--likely one or two low-ball inadvertent sales), that equates to 90M people (at $100 each) yielding $9B.

Again, think that's far-fetched? Ok, try this on for size: consumers also sell their crap on Ebay, and last year, Ebay had revenues of $6.35B. That's just their cut of the revenue exchanged by consumers. Estimates of how much money exchanges hands between people on Ebay range from $100B to $500B. And that's between people buying and selling stuff like used toothbrushes. So, is it so far-fetched to believe that your next door neighbor got a check for $100 from a magazine or hotel for their vacation photo in Hawaii?

$10B from pros unaccounted for in surveys? $9B from consumers? The numbers are starting to add up. What other asymmetric information is out there for us to consider that isn't likely calculated by current research by the photo industry? How about:

  1. Money collected from copyright violations
  2. Sales of photos as "art" through licensing agreements
  3. Money paid by companies to their own staff, customers or clients for photos or photo-related responsibilities, which is normally a "stock" style transaction
  4. Independent self-representing photographer/agencies like myself

There is enough anecdotal evidence to show that each of these categories by themselves have signs of growth that have exceeded everyone's prior expectations. The mere existence of the billions of photos on the net, which grows daily, imply that they are finding their way to uses that have resulted in some sort of exchange of money. All of these are simple examples that collectively amount to enormous sums that are not included in the total estimate of the "size of the photo market" by anyone doing surveys.

Market Opportunity
What do we do with this information? First and foremost, it confirms that opportunity exists for companies to capitalize on the fact that there is currently no organized mechanism by which the common consumer can participate. Microstocks may think they are, but they are failing in so many other ways, both in infrastructure and in market presence (that I've already discussed in previous logs), they can be ruled out until they change course.

Similarly, larger agencies, such as Getty and Corbis, continue to see the photo-buying market as their traditional clients, such as the media and advertising agencies, that they are not prepared to reach out from behind the green curtain and show themselves as the Great Oz. This could be why such agencies continue to embrace the industry statistics of $2B for photo licensing. In fact, Getty itself uses that figure constantly when it refers to itself and its relationship with the entire industry. It's their way of saying as a distraction, "don't pay attention to that little man behind the green curtain!"

It all adds up the simple fact that opportunities are abundantly available industry-wide, but there is no photo-equivalent of Ebay to help realize that potential. Why? Because people don't believe it exists. This, for the same reason that no one expected Ebay to succeed at what it does, or that Google would succeed at tiny text ads distributed on other people's pages, or that FedEx would ever succeed in making a business out of overnight delivery. Unless someone actually does it, it's easy for everyone else to say, "it can't be done."

That doesn't mean it's easy--as noted earlier, it's all about execution. Even in my past life as an email tech guy in silicon valley, no one ever believed my proclamations that email would be the consumer phenomenon it turned out to be. I wrote as vigorously back then as I write about the photo industry today, but all the players back then denied that the opportunity existed in the newly emerging internet. Yet, mine was the only company to succeed in the space, passing up everyone else, from IBM, Microsoft, Lotus and Oracle--all the top players in the market at the time. None of them had an internet-based email solutions, nor did they until I sold my company and left the industry.

In the photo business, as with email, the errors being made by the major players all stem from the same errors made by the others before: they think that because they're big, they're infallable and they control the market. Yet, the mark they're missing is that they keep focusing on the incredibly tiny (by proportion) segment of buyers in the media and advertising worlds. It's almost as though they are still in denial that the internet exists, and that the real opportunities lie there.

And they make this error because the industry analysis of "how big the photo market is" is so flawed.

The Boost from Latent Demand
Despite the fact that no King Arthur will emerge to pull the sword out of the stone anytime soon, it doesn't mean it won't happen some day. And when it does, this very fact will itself cause another inflation of the market due to latent demand. Let me explain:

When people ask me what I think the total size of the photo licensing market is, I say it's probably around 10x what most people think it is today--that is, real, recognized revenue generated by people that current industry data doesn't take into account. Yet, the potential size is 20x larger than that, once an Ebay-type entity makes news. what happens is that a public swell of interest causes more and more people to jump on the bandwagon, just as people jumped on Ebay. The lure of money for your junk is compelling, and if a model emerges that people understand, the magic chicken starts laying those golden eggs. This is a phenomenon called "latent demand." It's another term used in economics to describe human behavior once the perception of opportunity emerges. Examples include:

  1. Lottery ticket sales skyrocket once the value of the jackpot exceeds a certain psychological barrier.
  2. People invest more in the stock market when common news headlines show that it's reached all-time highs.
  3. People will drive more on highways when a carpool lane opens up, because the perception is that the new lane will relieve congestion, thereby removing the very disincentive they had for driving in the first place.

The phenomenon of latent demand is so powerful that it is precisely the unexpected wildcard that throws off data projections in any industry. In fact, this is precisely why Ebay became the phenomenon that it did.

Here's another way that latent demand could emerge: in a previous post, I suggested that Google could radically change the photo licensing market by simply making it possible to find all instances of a given photo on the net, thereby making it nearly impossible to "steal" images without at least being exposed to a financial liability. This, in itself, would fuel the rate of licensing to levels never anticipated. This could actually be the catalyst that proves the existence of the larger market, which will in turn provide the impetus for an Ebay-like company to emerge. Market forces have a tendency to coalesce and organize a more controlled and competitive market once opportunity appears less risky.

How am I capitalizing on all this? My entire business is successful because I know that most people who buy images have no idea that stock agencies exist, large or small. With 100 Billion people on the internet, when one of these people wants a photo, they use search engines--not stock photo sites. Of the 20,000 or so who visit my site on a daily basis, and of the tiny percentage who end up licensing, most are doing so for the first time in their lives. And, they have no idea what's involved, what market rates are, or anything. I make it as easy as possible to do so given the constraints of my single-man operation and self-imposed restrictions (that I should someday lift). I'm not competing with anyone at all, provided that the buyer is unaware of anyone else. It's simply whether they really want the photo for the price I'm asking. Indeed, if they can't afford it, some are lost as to where to go next. I said to someone once, "go back to the search engine where you found me." His response was, "I would, but it's just too time-consuming. I don't want to go through that again."

this wouldn't happen if there were an Ebay for photos...

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